Forecast: BP could enter political crosshairs as profits expected to gush

BP could end up in the firing line when it reports what analysts predict might be a more than 30-fold increase in its profit in the closing months of last year.

The oil giant is this week expected to report an underlying replacement cost profit – its preferred measure – of $3.9 billion (£2.9bn), up from $115 million in the same quarter a year earlier.

"Soaring oil prices should add some positivity to BP's results. Last we heard, cash profits had made their way 12 per cent beyond 2019 levels," said Hargreaves Lansdown equity analyst Laura Hoy.

Oil and gas giant BP is expected to announce a bumper rise in profits this week on the back of soaring energy prices. Picture: contributed.

But what might on face value seem like a blessing for the oil major is likely to come with an edge. The profits seem unlikely to go unnoticed in Parliament, where Labour MPs have been calling for a windfall tax on energy giants.

They argue that while households are paying through their teeth for gas – energy bills are set to spike more than 50 per cent in April – the companies who extract that gas are reporting massive profits.

Some of this money should be reclaimed to help struggling households cope with the rise, proponents of the tax say.

But BP may not take as big a drubbing as Shell, which was unfortunate enough to report its massive spike in profits on the same day as Ofgem announced the nearly £700 rise in the energy price cap.

Shortly afterwards, Labour MP Nick Smith said: "Does [the Chancellor] really think that the super profits of $20bn made by Shell are untouchable? His hands-off approach won't persuade many people across our country."

AJ Bell financial analyst Danni Hewson said: "Shell has been unlucky with its timing, but with BP just days away from its trading update, questions about whether a windfall tax is a viable solution to the current energy crisis will hang around.

"Of course, it's not a straightforward argument; both businesses have a duty to their shareholders – the people who bankroll their operations in good times and in bad.

Havoc

"And there have been plenty of bad times, not least over the last couple of years when Covid lockdowns wreaked havoc with the very businesses that are now enjoying such remarkable good fortune."

Away from the political football, shareholders will be looking to find out more about BP's green investment plans, Ms Hoy said. "The other big question mark is the group's sustainable energy strategy, set to become a much larger demand on cashflow.

"This part of the business is reported together with gas, making it difficult to gauge the expected returns. However, now that low-carbon projects are a larger part of BP's overall strategy, we'll be looking for management to offer a bit more detail." She added that some shareholders will want to see the company use some of its windfall to pay down debt.

Last week, Shell said it increased its profits nearly 14-fold amid soaring oil and gas prices. As prices surged, the group's upstream unit was able to collect $8.88 for every 1,000 cubic feet of gas it sold to customers over the last quarter of 2021. Just six months earlier, gas had been selling for $4.31, less than half of its most recent level.

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