Energy giant BP this morning announced first-quarter losses totalling more than £16billion following its decision to exit its shareholding in Russia's Rosneft as a result of the country's invasion of Ukraine.
The group has reported pre-tax charges totalling over £20billion relating to its interests in Russia.
BP had been operating in Russia for over 30 years, though it felt that the military action meant that the company's involvement with Rosneft, a state-owned enterprise, simply could not continue.
However, BP's underlying profits for the quarter did race ahead to £5billion compared to £3.25billion in the last quarter of 2021 after the surge in oil and gas prices.
Rising profits have prompted calls for a one-off windfall tax on energy companies to help UK households grappling with rising household bills. Labour has estimated this would raise £1.2billion over the year ahead to provide targeted support to households and businesses.
However, research published by Aberdeen & Grampian Chamber of Commerce last week revealed that the Treasury has already banked £1.5billion more in oil and gas receipts in the first three months of 2022 than it did over the same period in 2021.
Reliable energy
BP chief executive Bernard Looney said today: "In a quarter dominated by the tragic events in Ukraine and volatility in energy markets, BP's focus has been on supplying the reliable energy our customers need.
"Our decision in February to exit our shareholding in Rosneft resulted in the material non-cash charges and headline loss we reported today.
"But it has not changed our strategy, our financial frame, or our expectations for shareholder distributions. Importantly BP continues to perform and, step-by-step, we are making progress executing our IEC (integrated energy company) strategy - producing resilient hydrocarbons to provide energy security while investing with discipline in the energy transition."
On the subject of low-carbon energy, BP highlighted that it had recently increased its position in offshore wind with the ScotWind lease option award of 1.45GW net, and other developments include signing an agreement to form a joint venture with Aberdeen City Council to develop a hydrogen hub.
Eyes remain on Russia
As regards the outlook, BP expects an ongoing elevated risk of oil-price volatility.
It explained: "This reflects uncertainties around the level of disruption to Russian supply, the capacity for increased Opec+ supply, the ongoing impact of Covid-19 on demand and the impact of the conflict in Ukraine on economic growth."
The group anticipates the short-term outlook for gas prices to remain heavily dependent on Russian pipeline flows to Europe.
It went on: "In the second quarter of 2022, BP expects industry refining margins to remain elevated due to ongoing supply disruptions, particularly in Russia and Europe.
"Looking ahead, we expect second-quarter 2022 underlying upstream production to be lower than first-quarter 2022, primarily in gas and low-carbon energy, reflecting base decline and seasonal maintenance.
"On a reported basis, second-quarter production will reflect additional impacts from the absence of production from our Russia incorporated joint ventures."
"For full-year 2022, we continue to expect reported upstream production to be broadly flat compared with 2021 despite the absence of production from our Russia incorporated joint ventures.
"On an underlying basis, we expect production from oil production & operations to be slightly higher and production from gas & low-carbon energy to be broadly flat."
Balance sheet
For 2022, and subject to maintaining a strong investment-grade credit rating, BP remains committed to using 60% of surplus cash flow for share buybacks and intends to allocate the remaining 40% to further strengthen the balance sheet.
Based on BP's current forecasts at around $60 per barrel Brent, the company continues to expect to be able to deliver share buybacks of around £3.2billion per annum and have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025.