The oil major said earlier-than-expected proceeds from asset disposals, along with a strong trading performance in Q1 have helped to cut its net debt
BP says a “very strong” first-quarter performance has helped it reach its debt-reduction target ahead of schedule, paving the way for a resumption of its share buyback scheme.
The UK oil major has been targeting a net debt of $35bn, but had anticipated an increase during the first three months of 2021 from its previous update of $38.9bn, led by severance compensation from job cuts, investments into a US offshore wind venture and ongoing payments in the aftermath of the Deepwater Horizon oil spill.
But a fast start to the year, driven by “trading, the price environment and resilient operations”, means the company now plans to announce it has already met its debt target when it gives a financial update later this month.
It had previously anticipated reducing its net debt to $35bn by the end of this year, or in early 2022.
“This is a result of earlier-than-anticipated delivery of disposal proceeds combined with very strong business performance during the first quarter,” said BP chief executive Bernard Looney. “We look forward to updating the market at our first quarter results, including further information on share buybacks.”
BP expected to start share buybacks once net debt target is confirmed
Around $4.7bn has been received in disposal proceeds so far this year, BP said. This includes: $2.4bn from a 20% interest sale in its Oman gas project; $1bn from the sale of its petrochemical business to Ineos; $700,000 from an interest sale in US refining and logistics assets; and $400,000 from the sale of an interest in Palantir.
The company’s target of raising $25bn from asset disposals by 2025 is now “underpinned by agreed or completed transactions of around $14.7bn”, it added.
Once net debt is reduced to $35bn, BP has pledged to begin returning at least 60% of surplus cash flow to shareholders via its share buyback programme, subject to maintaining a strong credit rating.
It would be a welcome boost for the company, which struggled last year during the pandemic due to a loss of fuel demand and low oil prices, cutting its dividend in half last August in response to the financial stress.
BP is also trying to convince shareholders of the value in its new corporate strategy, in which it is gradually shifting away from core oil and gas businesses to prioritise clean energy investments.
Shares in BP were up around 2.8% in morning trading, as of 10.30am UK time, and have climbed around 17% since the start of the year.