The BP (LSE:BP) share price has already risen 40% in the last 12 months. This is a dramatic outperformance of the 4.7% increase that the FTSE 100 has seen in the same period. Rising energy prices have boosted the company’s profit margins and made it one of 2022’s top-performing shares.
Tuesday gave BP shares something more to cheer about as the energy giant released its highest quarterly results for 14 years. Does this put the BP share price in a good place to continue its strong performance?
Strong second-quarter results
BP announced underlying earnings of $8.5bn in the second quarter of 2022 — a 200% increase from the $2.8bn reported for 2021’s Q2. The group thanked strong refining margins and exceptional oil trading performance for the strong set of figures.
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Alongside the soaring earnings, it announced some other positive news. The company was able to reduce net debt for the ninth successive quarter to $22.8bn. It was also able to complete its $2.5bn share buyback programme in the period. The BP share price was up just under 3% on the back of Tuesday’s earnings.
The results came after a record-breaking week of earnings for large oil and gas companies. Shell announced its biggest-ever profit of $11.5bn while Chevron and ExxonMobil also reported soaring earnings. All three share prices rose on the news last week.
Possible higher taxes
The incredible growth in earnings in the energy sector may lead to future challenges. Governments may be encouraged to raise taxes on the sector to help fund aid for people in the cost-of-living crisis.
The UK has already announced a windfall tax of 25% on oil and gas companies operating in the North Sea. BP announced that this has dramatically increased its tax bill in the UK this year. If a similar tax was to be introduced in other countries, future profits would be considerably dented. This is something I would have to keep an eye on if I took a position in BP.
The shift towards renewables
BP has been aiming to safeguard its future in a greener economy through a series of renewable energy investments. It recently announced a 40% stake in an Australian renewables project where it hopes to develop 26GW of solar and wind power. The company has also sold its stake in a Canadian oil sand project, which is notorious for high levels of pollution.
This shift towards renewable energy is vital if the BP share price wants to see strong performance for decades to come. However, the group will be cautious not to shift away from currently higher profitable hydrocarbons too quickly.
Overall, I believe that BP shares are positioned fairly well for the next couple of years. Fuel prices are remaining high and the company has made encouraging debt reductions and share buybacks. While possible tax rises would harm profits, I believe the BP share price will continue to see steady growth. As a result, I’d be adding BP shares to my portfolio were it not for the fact that I’m trying to reduce my exposure to carbon-intensive industries.
