BP Delivers Record 2022 Profits, Scales Back on Climate Targets

BP is scaling back on its climate targets as profits from the lucrative oil and gas business hit record highs last year. The oil giant benefited from a spike in oil and gas prices to decade highs amid supply concerns and soaring demand in the aftermath of the Russia-Ukraine war. As a result, the company’s profits more than doubled an outperformance that has seen it increased its dividend and share buyback allocation.

BP Scales Back Fossil Production

The company’s Chief Executive Officer Bernard Looney says the company will continue producing fossil fuels to meet world needs. Consequently, the company only plans to lower its production of fossil fuels by 25% by 2030. That’s a big revision considering that the company had planned to cut output by up to 40% as it seeks to combat carbon emissions.

Nevertheless, the oil giant is ramping up its investments in low-carbon energy and fossil fuels as part of its new strategy. BP plans to split evenly additional investments of $8 billion to low-carbon energy and oil and gas. It is to target petroleum resources that can be developed quickly and offer quick returns as it wants to avoid being caught off-guard amid the growing push into renewable energy.

BP is concerned that the ongoing Russian invasion of Ukraine will force many countries to boost their energy security by focusing on readily available resources such as renewable energy. A push into solar, wind, as well as nuclear power could, in a few years, shift the scales of balance away from oil and gas. Therefore, BP is also ramping up its investments in clean energy, not wanting to be left behind amid the clean energy revolution.

Mounting Pressure

BP’s reluctance to embark on an aggressive plan to cut oil and gas production could be a result of growing pressure. The company is believed to be under pressure from investors to continue making money from the lucrative business. Oil and gas prices have risen in recent months due to soaring demand as the global economy bounces back from the COVID-19-triggered slowdown.

While the price of oil did skyrocket to highs of $128 a barrel last year, it has since pulled back to $80 a barrel, a level that oil companies remain well positioned to generate significant profits. For example, with oil trading above $80 a barrel for the better part of last year, BP generated a record profit of $27.65 billion.

Dividend and Buyback Boost

The record profit has allowed the company to increase its allocations to share buybacks and dividends, something that has gone well with the investment community. Consequently, the company has increased its dividend payout by 10% and added $2.75 billion to its buyback program.

It is highly unlikely that investors will urge the company to reduce its fossil fuel production and concentrate on clean energy, given the high rewards on offer with the current business model. Additionally, governments are also unlikely to mount pressure on the oil giants given the high taxes they pay back from their lucrative business. In the UK alone, BP paid a whopping £1.8 billion in tax last year.

Nevertheless, climate change proponents insist that taxes would still be higher even if the companies moved away from fossil fuels and concentrated on clean energy.