Saturday, August 6, 2022

Who owns BP? British Petroleum investors set to benefit from record profit of £7 billion

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The energy giant is reaping the rewards of oil price hikes, but its rising dividends and share buybacks should benefit a large number of savers who own shares in the company through their pensions.

BP has announced its highest profit for the second quarter in 14 years, with its favorite net profit metric for the period hitting £6.9 billion ($8.45 billion).

The controversy over energy companies’ record earnings is being fueled by the rapidly mounting cost-of-living crisis, but there are some who will benefit from BP’s record earnings.

The main reason for its record earnings is the result of simple economic considerations: the supply of its main product – oil – is being constrained in large part due to sanctions against Russia over its war with Ukraine, but demand remains constant.

This is driving up oil prices while straining household finances and boosting energy company coffers, leading some recently to call for an unexpected tax on the energy sector.

However, BP has raised its dividend by 10 percent to just over 6 cents a share — well above its previous forecast of a 4 percent annual increase — meaning people who own shares in the company are getting their earnings from the companies will see rise.

The company is one of the most widely held shares in UK pension funds, whether they are those managed by companies for their employees or those set up by individuals.

Chris Taylor, Global Head of Structured Products at Tempo Structured Products said: “Anyone who holds a passive UK tracker fund that mimics the FTSE 100 or FTSE All-Share will have exposure to the firm, while the oil major will too Features in the much broader MSCI World Index – meaning investors who have a fund tracking this stock market will also have exposure to BP.”

Pension savers who own UK-focused active funds, where fund managers choose which stocks to hold in their portfolios, are more likely to own BP, particularly if they own an income fund that seeks to provide investors with a steady income by paying dividends payable by the companies in which it is invested.

Russ Mold, investment director at AJ Bell, said some of BP’s largest shareholders are among the world’s largest providers of retail investment products, including Vanguard and BlackRock.

“These will primarily be large institutional investors running pension funds or investing on behalf of individuals, corporations, pension funds, etc.,” he added.

Data from BP’s annual report shows that more than 208,000 people each own fewer than 10,000 BP shares, suggesting the majority of them bought the shares directly, rather than owning them indirectly through a fund.

But those investors own just 1.56 percent of BP’s equity, meaning 662 investors — like BlackRock and Vanguard — own 98.44 percent of the shares.

Other major shareholders listed in BP’s annual report include Norges Bank, which manages the giant Norwegian sovereign wealth fund, while JPMorgan Chase Bank acts on behalf of US investors looking to buy BP’s US-listed shares.

Elsewhere, National Farmers Union Insurance Mutual Society, Interactive Investor (now owned by fund manager abrdn), Hargreaves Lansdown, M&G Investment Management, Barclays and Halifax Share Dealing Services are also named as major holders of another share class issued by BP common stock.

Walid Koudmani, chief market analyst at financial brokerage XTB, said the increase in dividends and share buybacks is “excellent news” for shareholders.

“The rise in dividends is a return of cash to shareholders and also increases demand for stocks as a better dividend yield is positive, especially as interest rates rise,” he said.

Mr Koudmani added that buybacks are also a “valuable way to return cash to shareholders” and that such a move “would be expected by shareholders as the company has reported its highest earnings in 14 years”.

Of course, not everyone in the UK is a BP shareholder and it’s likely that some of society’s poorest have small or non-existent pension pots.

Some would argue that while BP is paying out more of its profits to its shareholders than it previously stated, that money could be better used to invest in the green energy transition.

Richard Murphy, an economic justice campaigner and professor of accounting practice at Sheffield University, said 60 per cent of BP’s “extraordinary profits” are paid out to shareholders.

“They’re not funding green investments or any investments at all,” he said, adding that shareholders “just get a massive bung instead.”

While BP doesn’t control the price of oil, it does have some control over the level of its profits.

The company could further increase its investments in renewable energy projects to reduce the amount of profit it generates.

BP would no doubt like to highlight that its renewable energy pipeline — an indication of the amount of additional renewable energy capacity it has identified — grew by more than a fifth over the past year to 25.8 gigawatts.

XTB’s Koudmani said BP had recently invested $18 billion in investments.

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