BP has announced its lowest quarterly profit since Covid, says Tom Wilson in the Financial Times. Lower oil prices and weak refining margins weighed on the group’s performance. The 30% year-on-year drop in third-quarter earnings to $2.27 billion will “maintain pressure” on CEO Murray Auchincloss, whose pledge to make BP “simpler, more focused and higher value” has so far “struggled to boost performance”. BP will buy back another $1.75 billion of shares but promised to review the level of buybacks next year.
While BP has opted to “soften the ground” by talking about reviewing the payout, “anyone can see the direction BP is taking”, especially as its shares are near a four-year trough, says Bloomberg’s Javier Blas. BP is now “worth less than during the worst moment of the Gulf of Mexico oil spill in 2010”.
It was only able to keep dividends unchanged by taking on leverage, with the result that it is “the most indebted, relative to its size and cash generation, among the Big Oil companies”. Given that “the credit rating comes ahead of the shareholders”, payouts of $1 billion per quarter next year would be more realistic.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Oil sector outlook
It’s not just BP that is feeling the pinch. The “cork-popping years” for America’s biggest oil companies may also be nearing an end, says Collin Eaton in The Wall Street Journal. Exxon and Chevron also posted lower third-quarter profits. Both companies believe that cost-cutting and reduced spending since Covid have prepared them for the worst, with both firms saying they plan to protect shareholders’ payouts. But with a glut keeping prices low, some smaller shale drillers are set to cut buybacks and dividends.
Perhaps the only energy company with good news for shareholders is Shell, says Derren Nathan of Hargreaves Lansdown. It significantly beat earnings expectations thanks to a strong performance in all parts of the company except renewables. This has given management the confidence to “push the button” on a $3.5 billion buyback, the 12th consecutive quarter where plans to buy back $3 billion or more have been announced, while “still managing to shrink its net debt pile”. However, while it seems to be “finding the right balance between rewarding shareholders and investing in growth”, any further pullback in investment “could raise some questions on the group’s ability to future-proof the business”.
Even companies sensibly managing capital and bracing for the energy transition will struggle when there’s too much oil, says Robert Cyran for Breakingviews. Such a day could come sooner than many think, especially as oil cartel Opec and its allies are “sitting on record spare capacity”. Meanwhile, the growth in global demand is likely to slow down, driven by the spread of electric vehicles, which now account for 23% of new car sales. With the International Energy Agency estimating that supply capacity will exceed demand by eight million barrels a day by 2030, investors should “drill for investment ideas elsewhere”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Retail investors pull £1.8 billion from equities, but Europe bucks trendThe latest data from the Investment Association shows July was a bad month for equity funds, with outflows doubling compared to the month before, but Europe was a bright spot
-
'Britain is on the road to nowhere under Labour'Opinion Britain's economy will shake off its torpor and grow robustly, but not under Keir Starmer's leadership, says Max King
-
What are wealth taxes and would they work in Britain?The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?
-
UK bank stocks are no bargain – here's a safer alternativeOpinion Britain's banking sector faces severe political risks. Switch into this global financials trust instead, says Max King
-
Gold mining stocks outperform gold – can it last?Opinion Gold miners are shining brighter than the yellow metal for the first time in this cycle. Enjoy the ride while it lasts, says Cris Sholto Heaton
-
The AI barons call time on the bubbleOpinion OpenAI's Sam Altman and other tech giants are warning that the AI boom is reaching dangerous territory. They may end up as the authors of their own demise
-
Three small companies with big potentialOpinion Nish Patel, portfolio manager of The Global Smaller Companies Trust, picks three small companies where he'd put his money
-
Automatic Data Processing is making big profits from organising offices – should you invest?Automatic Data Processing has established itself as a one-stop shop for managing the workplace. Is it a sound long-term investment?
-
Crypto mogul Do Kwon pleads guilty to fraudSouth Korean entrepreneur Do Kwon, who used to call critics cockroaches, faces a long spell in jail after pleading guilty to fraud relating to the collapse of two digital coins
-
How multi-asset trusts can help you deal with volatilityMulti-asset trusts help navigate global uncertainty and provide investors with an added layer of protection through diversification
