BP Plc offered a glimpse of the profitability of its huge and secretive trading arm, suggesting it makes annual returns of as much as $2.5 billion.
The revelation, which came during presentations this week about the company’s clean-energy plans, follows the emergence of trading in the first half of the year as one of the few bright spots for BP and its peers. The operations brought a torrent of cash that partly offset the impact of the coronavirus crisis on oil prices and energy demand.
BP’s in-house trading business has a “long track record” of boosting the company’s return on average capital employed by as much as 2 percentage points, according to Chief Executive Officer Bernard Looney.
Unlike the closely guarded trading profit, the company does disclose the average capital it employs each year. From 2015 to 2019, that figure was $124.2 billion a year, according to last year’s annual report. That suggests a 2% uplift to the RoACE equates to about $2.5 billion.
BP doesn’t disclose the profits of its trading unit and declined to comment on questions from Bloomberg News about this calculation.
Although better known for its oil fields, refineries and fuel stations, BP is one of the world’s largest commodity traders. Alongside rivals Royal Dutch Shell Plc and Total SE, it bets its own money on the ups and downs of the global oil and natural gas markets. The company said it traded just under 11 million barrels a day of crude oil last year, more than the best-known names of the commodity trading industry such as Vitol Group, Trafigura Group and Glencore Plc.
Historically, the three major oil companies have disclosed as little as possible about how their traders make money. When investors earlier this year asked Total about the profitability of its trading business, CEO Patrick Pouyanne responded: “Oil trading is a secret.”
The companies’ trading operations exploited wild price moves this year created by the pandemic. BP, for example, highlighted “exceptionally strong results” in its trading arm during the second quarter, while Shell’s equivalent division enjoyed record profits.