BP Earnings: Repurchase Rate Trimmed Again, but Dividend Bumped Up 10%

BP’s BP. second-quarter earnings fell from the year before, as well as falling short of market expectations on lower oil and gas prices, narrower refining margins, and mixed trading results. Underlying replacement cost profit fell to $2.6 billion from $8.5 billion a year ago while operating cash flow fell to $6.3 billion from $10.9 billion the year before. Production increased 3.4% to 2,272 thousand barrels of oil equivalent per day from the year before, while management now expects full-year 2023 volumes to be higher than in 2022 as opposed to flat previously.

Given its return target (60% of surplus cash flow) and the decline in operating cash flow, BP reduced its third-quarter repurchase rate to $1.5 billion from $1.75 billion announced with first-quarter results and completed in July. However, it did increase its quarterly dividend by 10%. Gearing rose to 22% during the quarter and remains at the upper end of the peer group range.

BP shares have sagged after initially faring well in the wake of the announcement earlier this year that it would maintain oil production at higher levels for longer than previously expected. We continue to like the change, but BP has since been upstaged by peer Shell, which announced a more dramatic shift away from renewables to hydrocarbons in June. We think this difference makes Shell more appealing. Although our fair value estimate and moat rating for BP is unchanged, its valuation is slightly more compelling. Also, with commodity prices staging a comeback, we expect BP could increase its repurchase rate with third-quarter earnings.