Due to the weakening of oil prices compared to last year, oil giant BP p.l.c. announced on Tuesday that its second-quarter profit fell nearly 70% year-on-year.
However, despite the larger-than-expected decline in profit, BP p.l.c. still increased its dividend by 10% and announced a share buyback of $1.5 billion.
This practice is consistent with other oil giants. Shell, Total, ExxonMobil, and Chevron, although their profits have also declined significantly, continue to prioritize investor returns.
The performance shows that BP p.l.c.'s underlying replacement cost profit (representing net profit) for the second quarter was $2.6 billion. According to Refinitiv's compilation, analysts had previously expected BP p.l.c.'s second-quarter profit to reach $3.5 billion.
In comparison, BP p.l.c. had a profit of $4.96 billion in the first quarter of this year, and a profit of $8.5 billion in the second quarter of 2022. Last year, due to soaring energy prices, the oil giants made substantial profits.
BP p.l.c. stated that the decline in profit reflects a significant drop in refining margins, increased turnover and maintenance activity, and weak performance in oil trading.
However, the current return on BP p.l.c. shares far exceeds the company's guidance.
The company had previously stated that assuming Brent crude oil prices are around $60 per barrel, it is expected to repurchase approximately $4 billion worth of shares and increase dividends by 4% annually. In the past four quarters, the company has repurchased $10 billion worth of shares and increased dividends by one-fifth.
Stuart Joyner, an analyst at UK research firm Redburn, said in a report on Tuesday:
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&#34;Given the weaker potential performance and increased net debt, this (increasing dividends, committing to repurchase more shares) is surprising.&#34; &#34;But as this industry increasingly relies on returns for trading, it may boost the stock price on the day of the earnings report.&#34;
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<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1c1c4cf8-bf57-46dd-b795-4dbc253b6983.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1c1c4cf8-bf57-46dd-b795-4dbc253b6983.png"/>
However, these large cash outflows have attracted some criticism at a time when many countries are struggling to cope with the cost of living crisis and the world needs significant investments in low-carbon energy to address climate change.
It is worth noting that in the context of weak profitability, share buybacks and dividend increases have an important side effect - increased debt. The company's net debt increased by more than $2 billion compared to the previous quarter, reaching $23.7 billion, although this is still far below the level of a few years ago.
In terms of capital expenditure, BP p.l.c. is sticking to its capital expenditure plan of $16 billion to $18 billion this year. So far, the company has invested $7.9 billion and is expected to reach the lower end of this range by the end of the year.
Like Shell, BP p.l.c. has also faced criticism in recent months for downplaying its climate commitments. In 2020, the company stated that it would reduce emissions by 35% to 40%, but in early February of this year, the company stated that the new target is to reduce emissions by 20% to 30%.
BP CEO Bernard Looney explained:
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&#34;In fact, we announced in February that we will invest an additional $8 billion in energy transition over the next decade, with spending between $55 billion and $65 billion.
At the same time, we announced an increase in investments in oil and gas because it is crucial to invest in the supply of these energy systems to meet demand.
If we don't do this, there will be only one outcome, which is price increases. We need to transition quickly while ensuring a smooth transition.&#34;
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Despite a larger-than-expected decline in profits, BP p.l.c. has still increased its dividend by 10% and announced plans to repurchase $1.5 billion worth of stocks.

Big players are also having a tough time! BP p.l.c. Q2 profits plummeted by 70% but increased dividends by 10%.