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(Alliance News) - The bumper returns BP PLC generously gifted to shareholders on the back of the oil major's return to profit is likely to further stoke calls for a windfall tax on energy companies.
A windfall tax is a one-off tax imposed on a company or group of companies and was introduced by Tony Blair's Labour government in 1997.
BP on Tuesday hailed a year of "performing while transforming" as it posted a swing back to profit on improved oil prices after a pandemic-battered 2020.
At the same time, it set out plans to accelerate its move to net zero and plough a greater proportion of funds into clean energy ventures such as electric vehicle charging, renewables and hydrogen.
BP's underlying replacement cost profit for the fourth quarter of 2021 was USD4.07 billion, surging from just USD115 million a year before. Based on an average Brent price of USD60 a barrel, BP expects to be able to deliver share buybacks of around USD4.0 billion a year and have room for an annual dividend uplift of 4% through 2025.
For the fourth quarter of 2021, BP declared a dividend per share of 5.46 cents, up 4.0% from 5.25 cents a year ago, bringing 2021's total to 21.63 cents, down 18% from 26.35 cents in 2020. It completed share buybacks worth USD1.73 billion in the fourth quarter, and plans to carry out a further USD1.5 billion from surplus cash flow before announcing its first quarter results for 2022.
Over the past week, oil prices have hit seven-year highs, with the price of a barrel of Brent crude standing at USD90.74 on Tuesday, versus around USD78.50 at the end of the third quarter of 2021. Prices slumped below USD20 a barrel at the height of the pandemic.
The surge in BP's earnings and strong shareholder returns come as a jump in energy prices means households are facing huge increases in gas and electricity bills from April.
The 54% rise in gas and electricity bills is going to cost the average household around GBP700 every year, according to Ofgem.
The London-based company has argued that large earnings are needed to fund its eco-friendly ambitions.
Oil and gas will continue to play an important role in the UK's energy supply as the country transitions to net-zero carbon emissions, Prime Minister Boris Johnson said.
The PM led a discussion of the UK energy security situation at the weekly meeting of the Cabinet in Downing Street on Tuesday.
The move coincided with BP's earnings release, however No 10 indicated there was no shift in the UK government's opposition to calls for a windfall tax of fossil fuel firms.
"There is obviously volatility in gas prices, you are seeing that reflected in profits," the prime minister's official spokesman said.
"I am not going to comment on individual companies. Those that perform well pay more in taxes, including corporation tax."
The spokesman said the UK was investing in renewables to provide further security of supply, with important roles for nuclear and offshore wind, as the economy moved towards net zero.
"The oil and gas industry will continue to play a role as we make that transition. They are investing in clean technologies like carbon capture and hydrogen that we need to get to net zero," the spokesman said.
The argument put forward, including by Chancellor Rishi Sunak, is that any windfall tax could reduce investment in renewable technology and potentially damage chances of reaching Net Zero.
The opposition Labour Party has long called on the government to introduce a windfall tax on big oil to to help ease the cost of living.
"The Chancellor's energy plans last week left families more worried than ever. It's time for Labour's plan for a one-off windfall tax on oil & gas producers to cut bills," Shadow Chancellor Rachel Reeves said on Twitter.
Last week, rival Shell PLC also reported bumper earnings as the UK energy regulator announced households would see a rise in energy bills.
"The UK Government has ruled out a windfall tax for the oil and gas sector for now, but the threat of a legislative intervention hangs in the air given the contrast between voters struggling to heat their homes and two of Britain's biggest companies announcing such strong results and billions in giveaways to shareholders," said AJ Bell's Russ Mould.
"What will be interesting to watch, if oil prices remain elevated for an extended period of time, is whether there might be some mission creep in BP's move to decarbonise as the economics of oil and gas projects become just too attractive to ignore," Mould added.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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