BP profits fall to lowest level in four years as oil and gas industry braces for budget tax raid

BP posted its lowest quarterly profit since the pandemic yesterday, as the oil and gas industry braced for a fiscal budget raid.

The energy giant’s third-quarter profits fell 30 percent to 1.8 billion pounds (the lowest level in four years) amid a slowdown in global economic activity and oil demand, particularly in China.

While profits beat analysts’ expectations, the drop brings greater scrutiny to boss Murray Auchincloss, who has come under pressure to improve BP’s performance.

Auchincloss, who this year replaced former chief executive Bernard Looney, did not shed any light on the oil giant’s future strategy following reports that BP is backtracking on its shift towards green energy.

It comes as Chancellor Rachel Reeves is today expected to increase windfall tax on the profits of energy companies, taking the overall tax on the industry to 78 per cent, one of the highest in the world.

The windfall profits tax, which was originally introduced in response to skyrocketing energy prices following Russia’s invasion of Ukraine, will also be extended until the end of the decade.

And in a new setback for the oil and gas sector, the Government is also preparing to eliminate tax incentives for investment and block new exploration licenses.

Analysts said the impact of the windfall tax will be very small for BP due to its limited North Sea operations.

But the business will be hit by the removal of investment subsidies, which could speed up decommissioning and increase its capital spending.

It comes as investors seek clarity on BP’s strategy amid concerns the energy giant has underperformed its London-listed rival Shell and US competitors Chevron and ExxonMobil.

Auchincloss, who was previously BP’s finance chief, sought to reassure shareholders, saying: “I am absolutely clear that the actions we are taking will grow the value of BP.”

And the company announced a £1.35 billion share buyback, delivering on its promise to buy back £2.7 billion worth of shares in the second half of the year.

AJ Bell’s Russ Mold said the earnings reports “will have done little to ease the pressure” on the Canadian-born businessman.

“While better than nothing, buybacks alone clearly won’t be enough to beat the market, particularly against a backdrop of lower earnings and cash flow and rising debt,” he said.

“Ultimately, BP has a lot of work to do to convince investors that it has a clear strategy for the future.”

John Moore of wealth manager RBC Brewin Dolphin said share buybacks and dividends would be “welcomed by the market” but said “there has been a sense of uncertainty around the company’s strategic financial priorities.”