BP, a FTSE 100 oil company, announced on Tuesday that its profits had nearly tripled to nearly £7 billion in Q2 of the year due to high oil prices caused by Russia’s invasion of Ukraine. This announcement sparked anger from MPs and campaigners as families struggle with the cost of living crisis. BP’s preferred measure of profit, known as its underlying replacement cost profit, rose to $8.5 billion between April and June, up from $6.2 billion in Q1 and three times BP’s underlying profits of $2.8 billion in Q2 of 2021.
This was the second highest quarterly profit in BP’s history, with only its $8.8 billion profit in the summer of 2008 surpassing it. Rachel Reeves, the shadow chancellor, criticized the “eye-watering profits” and claimed the government was “totally wrong” for giving significant tax breaks to oil companies. On the other hand, Jacob Rees-Mogg, the government’s Brexit opportunities minister, stated that he was not in favor of an extra windfall tax.
In response to the high profits, BP announced that it would give investors $3.5 billion through a share buyback program and increase its total dividend payout by 10% to approximately $1.1 billion. Oil companies in the UK and beyond have seen booming earnings in recent months due to rising energy prices, which has left households around the world struggling with high bills.
The research firm, Cornwall Insight, predicts that the energy price cap on bills in Great Britain is on track to rise to £3,615 a year starting in January, as Russia’s invasion continues. Other oil companies such as Shell and Centrica also reported high profits, with Shell announcing record quarterly profits of nearly £10 billion between April and June and Centrica reporting operating profits of £1.3 billion, most of which came from its oil and gas drilling division.
Despite being forced to write down the value of its investments in Russia by $24 billion in Q1, higher oil prices have allowed BP to recover much of the lost ground. The strong cash flows have also allowed the company to reduce its debt pile, providing a further boost to investors. BP’s share price increased by 4% on Tuesday morning.
The UK government recently responded to political pressure by implementing a £5 billion windfall tax on oil companies’ “extraordinary profits.” Reeves criticized the government for giving oil companies 80% tax breaks for new investments that reduced their tax bill and claimed that Labour would use the extra cash from abolishing these tax breaks for a “green energy sprint” and for more home insulation to reduce energy use.
Environmental campaign groups, such as Greenpeace and Friends of the Earth, also called for a much stricter energy profits levy. Doug Parr, the chief scientist for Greenpeace UK, claimed that the government was failing the UK and the climate by not implementing a proper windfall tax on these “monster profits.” Rees-Mogg, who is backing Liz Truss in the race to become the UK’s next prime minister, stated that he was not in favor of windfall taxes, claiming that a profitable oil sector was necessary to invest in extracting energy.
The CEO of BP, Bernard Looney, declined to respond directly to the criticisms on Tuesday but acknowledged the difficulties faced by households. He cited BP’s tax payments in the UK and investments in new oil and renewable energy as examples of the company’s efforts to help. He stated that energy affordability was an “acute problem” and that BP’s oil and gas operation was “capturing the upside from higher prices.”
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
BP’s announcement of its nearly tripled profits to nearly £7 billion in Q2 of 2023 sparked controversy as families around the world face the cost of living crisis. The oil company’s underlying replacement cost profit rose to $8.5 billion between April and June, three times its underlying profits of $2.8 billion in Q2 of 2021. This was the second-highest quarterly profit in BP’s history, only surpassed by its $8.8 billion profit in 2008.
The high profits were met with criticism from MPs, campaigners, and environmental organizations such as Greenpeace and Friends of the Earth, who called for stricter energy profits levies. Shadow Chancellor Rachel Reeves criticized the “eye-watering profits” and claimed that the government was “totally wrong” for giving significant tax breaks to oil companies, while Brexit Opportunities Minister Jacob Rees-Mogg argued against an extra windfall tax.
In response, BP announced that it would give investors $3.5 billion through a share buyback program and increase its total dividend payout by 10% to approximately $1.1 billion. Other oil companies, such as Shell and Centrica, also reported high profits, leading the research firm Cornwall Insight to predict a rise in the energy price cap on bills in Great Britain.
Despite having to write down the value of its investments in Russia by $24 billion in Q1, higher oil prices allowed BP to recover much of its lost ground. The CEO of BP, Bernard Looney, acknowledged the difficulties faced by households but cited the company’s tax payments in the UK and investments in new oil and renewable energy as examples of its efforts to help.
The UK government recently implemented a £5 billion windfall tax on oil companies’ “extraordinary profits” but was criticized by Reeves for giving oil companies 80% tax breaks for new investments. Greenpeace Chief Scientist Doug Parr claimed that the government was failing the UK and the climate by not implementing a proper windfall tax on the “monster profits.” Despite the criticism, Looney declined to respond directly to the criticisms but stated that energy affordability was an “acute problem.”
