BP will hand billions of pounds to shareholders after tripling its profits to nearly £7bn in the second quarter of the year amid high oil prices during Russia’s invasion of Ukraine, sparking anger from MPs and campaigners as families struggle in the cost of living crisis.
The FTSE 100 oil company on Tuesday said its preferred measure of profit, which it describes as its underlying replacement cost profit, rose to $8.5bn (£6.9bn) between April and June. That is up from $6.2bn in the first three months of the year, and three times BP’s underlying profits of $2.8bn in the second quarter of 2021.
It was the second highest quarterly profit in BP’s history, behind only its $8.8bn underlying profit in the summer of 2008.
Rachel Reeves, the shadow chancellor, said the “eye-watering profits” showed that the government was “totally wrong” to have given significant tax breaks to oil companies. However, the government’s Brexit opportunities minister, Jacob Rees-Mogg, said he was not in favour of an extra windfall tax.
BP said it would hand investors $3.5bn through a share buyback programme, while it increased its total dividend payout by 10% to about $1.1bn.
Oil companies in the UK and beyond have enjoyed booming earnings in recent months on the back of rising energy prices as households around the world have struggled with soaring bills. As Russia’s invasion grinds on, the research firm Cornwall Insight predicts the energy price cap on bills in Great Britain is on track to rise to £3,615 a year from January.
Shell last week reported record quarterly profits of nearly £10bn between April and June, while the British Gas owner, Centrica, made operating profits of £1.3bn, most of which came from its oil and gas drilling division. Shell and France’s Total last week said they would also give shareholders billions of dollars in share buybacks and dividends.
The company was forced to write down the value of its investments in Russia by $24bn in the first quarter, but higher oil prices have made up for much of the lost ground. The strong cashflows have allowed it to cut its debt pile, in a further boost to investors.
BP’s share price increased by 4% on Tuesday morning.
The UK government belatedly responded to political pressure amid soaring energy prices with a £5bn windfall tax on oil companies’ “extraordinary profits”.
Reeves criticised the government for at the same time giving the oil companies 80% tax breaks for new investments that reduce their tax bill. She said Labour would use extra cash from abolishing the tax breaks for a “green energy sprint” instead, as well as for more home insulation to cut energy use.
“People are worried sick about energy prices rising again in the autumn, but yet again we see eye-watering profits for oil and gas producers,” she said.
“Labour argued for months for a windfall tax on these companies to help bring bills down, but when the Tories finally U-turned they decided to hand billions of pounds back to producers in tax breaks. That is totally wrong.”
The environmental campaign groups Greenpeace and Friends of the Earth also called for a much stricter energy profits levy.
Doug Parr, the chief scientist for Greenpeace UK, said: “While households are being plunged into poverty with knock-on-impacts for the whole economy, fossil fuel companies are laughing all the way to the bank. The government is failing the UK and the climate in its hour of need.
“Government must bring in a proper windfall tax on these monster profits and stop giving companies massive tax breaks on destructive new fossil fuel investments.
Rees-Mogg, who is backing the frontrunner, Liz Truss, in the race to be the UK’s next prime minister, told LBC radio: “I’m not in favour of windfall taxes. The energy industry is enormously cyclical. You need to have a profitable oil sector so it can invest in extracting energy.”
The BP chief executive, Bernard Looney, declined to respond directly to the criticisms on Tuesday morning.
However, on a call with analysts he acknowledged the difficulties faced by households. Energy affordability is an “acute problem for many”, but he cited BP’s tax payments in the UK and investments in new oil and renewable energy profits as examples of what the company was doing to help.
“We all have to recognise that it’s a very, very difficult place for people, not just in the UK but also around the world,” he said. “We understand that. We get it.”
But he also said that BP’s oil and gas operation was “doing what it’s supposed to do: capture the upside from higher prices”. BP also said it had enjoyed massive growth in profit margins from its refineries, which make products such as petrol, diesel and jet fuel – all of which have contributed to rapid inflation in major economies.
BP reports its own replacement cost profit measure to indicate its profitability before taking into account swings in the value of the oil it has in storage.
A Treasury spokesperson declined to comment on individual taxpayers but said the £5bn energy profits levy would “help pay for our £37bn support package, which includes direct payments worth at least £1,200 each to the 8m most vulnerable families, a record fuel duty cut, and a national insurance cut worth up to £330 a year for the typical employee”.