Financial basis

BP increases dividend and announces share buyback to win back investors

BP PLC updates

BP increased its dividend and announced a $ 1.4 billion share buyback program after the energy company reported better-than-expected results for the second quarter.

It is the latest group to try to revive investors by capitalizing on the rise in oil prices.

The energy major said on Tuesday that its underlying profit on a replacement cost basis, the most widely followed metric by analysts, reached $ 2.8 billion in the second quarter, beating expectations by roughly $ 2.2 billion.

Managing Director Bernard Looney, who has started to pivot the company for the long term towards renewables since taking charge last year, said the company was increasing its dividend by 4% and would have the “ability” to increase it by a similar amount. amount each year until 2025.

“On average, at around $ 60 a barrel, we expect to be able to make repurchases of around $ 1 billion per quarter and have the capacity to increase the annual dividend by around 4% through 2025,” Looney said. “It shows that we are continuing to perform while transforming BP.”

The performance of stocks of energy majors has generally lagged behind the rebound in oil and gas prices this year, as fuel demand has started to recover from the depths of lockdowns and induced travel bans. by the pandemic in 2020. BP is still down more than a third from the start of last year.

Brent crude, the international benchmark for oil, fell below $ 20 a barrel in the second quarter of 2020 but is trading above $ 70 a barrel, slightly higher than before the pandemic.

BP still depends on oil and gas revenues for the vast majority of its profits, with higher prices giving it the ability to funnel more cash to shareholders as well as investments such as offshore wind, solar and l ‘hydrogen.

Investors across the industry have demanded higher returns, putting pressure on executives given long-term uncertainty about the future of oil and gas, and the potential for companies to turn into giants. renewable energies.

Royal Dutch Shell and Italy’s Eni increased their dividend last week and joined other companies, including France’s Total, in launching share buyback programs.

“While we remain skeptical of BP’s bold new strategy, we believe some of these risks are reflected in its current valuation,” said Biraj Borkhataria of RBC Capital Markets. “We expect shareholder returns over the 2021-25 period to be competitive with the peer group. ”

BP said its higher profits were due to higher crude prices and higher margins, but were offset to some extent by weaker results in gas marketing and trading. In the first quarter of 2021, underlying profit from replacement cost was $ 2.6 billion.

The company said it also used the windfall of rising energy prices to deleverage, but slowed down in the second quarter after falling below its net debt target of $ 35 billion. during the first three months of the year. Net debt fell to $ 32.7 billion in the quarter, down from about $ 600 million, after falling $ 38.9 billion at the end of 2020.

BP said the strength in oil prices meant it raised its expectations for crude prices through 2030, but expected them to be lower after that point due to an “acceleration in the price. pace of transition to a low-carbon economy “. It partially reversed the huge write-downs of last year, valuing the pre-tax value of its assets at $ 3 billion in the quarter.

In BP’s latest quarterly results, when it announced an interim buyback program, Looney said he believed there “doesn’t need to be a choice” between prioritizing investing in energy green or the return of money to shareholders.

The company raised its dividend from 5.25 cents per share to 5.46 cents, the first increase since it was cut last August when oil prices were depressed. The $ 1.4 billion share buyback was scheduled to be completed before third quarter results, up from $ 500 million in the second quarter.

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