BP beats profit expectations after warning of weaker oil refining

British oil giant BP on Tuesday reported stronger-than-expected net profit for the second quarter and raised its dividend despite previously warning of significantly lower refining margins.

The oil and gas major posted underlying replacement cost profit, used as a proxy for net profit, of $2.8 billion for the second quarter. That beat analyst expectations of $2.6 billion, according to an LSEG-compiled consensus.

BP reported net profit of $2.7 billion for the first three months of the year and $2.6 billion for the second quarter of 2023.

The energy firm announced it had increased its dividend by 10% to 8 cents per share, up from 7.27 cents. It also maintained the rate of its share buyback program at $1.75 billion over the next three months.

Kate Thomson, chief financial officer at BP, said Tuesday that the firm’s decision to boost shareholder returns “reflects the confidence we have in our performance and outlook for cash generation.”

BP said earlier in the month that weak refining margins and lower oil trading results would likely dent the firm’s second-quarter results by as much as $700 million. The firm on Tuesday confirmed a writedown of $1.5 billion, partly due to a plan to scale back refinery operations at its Gelsenkirchen plant in Germany.

“We are driving focus across the business and reducing costs, all while building momentum in our drive to 2025,” BP CEO Murray Auchincloss said in a statement.

“Our recent go-ahead of the Kaskida development in the Gulf of Mexico business, and decision to take full ownership of bp Bunge Bioenergia while scaling back plans for new biofuels projects, demonstrate our commitment to delivering as a simpler, more focused and higher value company,” he added.

BP’s net debt stood at $22.6 billion at the end of the second quarter, down from $23.7 billion compared to the same period last year.

Shares of the London-listed company rose 1.9% on Tuesday morning.

BP’s stock price is down roughly 2.8% year-to-date. By comparison, shares of British rival Shell have climbed nearly 8% so far this year, while shares of U.S. oil giant Exxon Mobil have jumped more than 16%.

BP’s second-quarter results come as the company seeks to rebuild investor confidence in its strategy.

Analysts at RBC Capital Markets said BP reported “resilient” second-quarter earnings, “with a small beat on the bottom line driven primarily by a lower than expected tax rate.”

They added that BP’s dividend bump came in at the top end of market expectations, while the reduction in net debt “should be welcomed” given that rising net debt had been seen as an issue for BP’s investment case.

In recent months, BP has come under pressure from activist investor Bluebell Capital Partners to ramp up its oil and gas investments and scale back on green pledges.

Under the leadership of Bernard Looney, who resigned in September after less than four years on the job, BP had promised that its overall emissions would be 35% to 40% lower by the end of the decade.

The firm, which was one of the first energy giants to announce plans to cut emissions to net zero “by 2050 or sooner,” has since watered down these climate plans. BP said in a strategy update last year that it would instead target a 20% to 30% cut, noting that it needed to keep investing in oil and gas to meet demand.

Reuters reported in late June that BP CEO Murray Auchincloss had imposed a hiring freeze and paused renewables projects as part of a cost-cutting plan to boost returns. BP said at the time that Auchincloss had introduced six priorities “to deliver as a simpler, more focused and higher value company.”

Shell is scheduled to report second-quarter results on Thursday, with Exxon Mobil and Chevron both poised to follow suit on Friday.

Norwegian oil and gas producer Equinor on Wednesday reported a 4% drop in second-quarter profits, outperforming analyst expectations.