BP boasts record-breaking profits​

By Jake Rickman​

What do you need to know this week?

British energy giant BP posted record-breaking annual profits, having reported earnings of $27.7bn, which is double its earnings last year and 5% more than its previous record of $26.3bn in 2008.

Last week, Shell also reported that it had broken its profit records, with an annual profit of nearly $40bn in 2022. However, despite these eye watering figures, Shell and BP — two of Europe’s biggest “supermajors”, the terms given to the largest six oil producers in the world — still lag behind the US supermajor Exxon Mobil. Exxon announced last week that its profit for FY 2022 was $55.7bn.

These bumper profits across the sector reflect the dramatic increase in the cost of crude oil throughout 2022, with an average price per barrel of $94.53 and a year high of $123.70, amounting to a year-over-year (YoY) increase of 55%. Prices have since fallen nearly 8% in 2023.

As part of BP’s annual earnings presentation, BP announced that it intended to invest $8bn more into oil and gas by 2030 to target “short-cycle fast-payback opportunities with lower additional operational emissions”. In plain English, this means that BP wants to ensure it can capitalise on future short-term inefficiencies in the supply and demand of oil and gas. Indeed, this is largely what happened in the aftermath of lockdowns, as the demand for oil and gas outstripped the supply, thereby causing a surge in price which massively benefitted oil and gas producers.

The consequence of BP’s revised strategy is that it expects its oil and gas output by 2030 to merely drop by 25%, as opposed to its previous target of lowering its output by 40%. No doubt to many, this amounts to an unconscionable U-turn, especially given that BP has positioned itself among the supermajors as leading the energy transformation movement with its “Integrated Energy Strategy”.

Why is this important for your interviews?

Understanding how market dynamics impact questions of ESG compliance can serve as valuable interview fodder, especially for firms with large Energy practices.

Out of all the sectors, Energy remains at the centre of the ESG (Environmental, Social, Governance) debate. Despite the (often intense) pressure placed by certain investors and policymakers on the industry to abandon hydrocarbon investments and embrace renewables, the uncomfortable fact is that, in the short term and under certain market conditions, as a subsector of Energy, Oil & Gas remains wildly profitable.

While a substantial portion of investors prioritise “ESG-compliant opportunities” (an ill-defined concept), thereby shying away from adding supermajor stocks to their portfolios, this is far from universal. Many investors remain married to the dividend yields and capital growth supermajor stocks provide them.

As a result, supermajors struggle to balance the conflict between the long-term drive to renewables with the short-term profit that follows spikes in the demand for oil and gas.

How is this topic relevant to law firms?

One of the ways the law firms seek to add value is by helping clients navigate this delicate issue surrounding ESG investing and compliance. The fact is that in most cases there is often no strict definition of what constitutes ESG compliance, which makes this a complex dilemma that requires commercial advice as much as legal and regulatory.