The UK oil major has met its $35bn debt reduction target a year earlier than expected, allowing it to resume share buybacks in a boost to its investor proposition amid a low-carbon shift
BP is seeking to bolster investor confidence after a loss-making 2020 and a strategic shift to cleaner energy (Credit: Jonathan-Weiss/Shutterstock)
Shares in BP enjoyed a boost this morning after the company reported better than expected first-quarter results and confirmed plans to restart share buybacks later this year.
The UK energy major said “an exceptional gas marketing and trading performance, significantly higher oil prices and higher refining margins” had driven a three-fold increase in earnings compared to a year earlier.
Its underlying replacement cost profit – the preferred earnings metric – totalled $2.6bn for the three-month period, up from $791m a year ago and $115m in the previous quarter.
Reported profit for the first quarter of 2021 was $4.7bn, compared to a $4.4bn loss taken in the first three months of 2020.
BP hits net debt target early, allowing resumption of share buybacks
BP hinted earlier this month that a strong quarter had helped it reach its $35bn debt-reduction target much earlier than planned, a threshold it said would allow it to resume the share buyback programme.
It confirmed today (27 April) that divestments totalling $4.7bn during the period drove net debt down to $33.3bn, compared to $51bn a year ago and $38.9bn at the end of 2020.
The company is targeting $25bn from asset disposals by 2025 as it seeks to streamline its operations as part of a broader shift to becoming a more agile business focused on lower-carbon energy.
“With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early,” said BP chief executive Bernard Looney.
“We are commencing share buybacks in the second quarter which, alongside our resilient dividend, support the growth in distributions to shareholders.”
Shares in the company jumped 3.5% in early trading, and have since settled to an increase of around 1%. Since the start of 2021, BP’s share price has grown by around 18% having almost halved over the course of 2020 amid huge market disruption caused by the pandemic.
BP will restart the share buyback scheme with a $500m payout in the second quarter, saying it intends to “offset the expected full-year dilution from the vesting of awards under employee share schemes through buybacks”.
It also reaffirmed its commitment to using 60% of surplus cash flow for future buybacks, subject to maintaining a strong credit rating, with the remaining 40% allocated to strengthening the balance sheet.
Surplus cash flow is expected throughout the second half of the year, subject to an oil price above $45 per barrel and Henry Hub gas prices of at least $3 per million British thermal units.
It is welcome news for the London-based energy firm which, along with its peers in the market, endured a torrid 2020 as global lockdowns and travel restrictions took a huge chunk out of oil demand and sent commodity prices tumbling to historic lows.
BP has also struggled to convince investors of the merits of its long-term shift to cleaner energy, with plans to gradually wind down its oil production and invest more heavily in renewable sources and electrification services like EV charging.
Looney added: “This quarter demonstrates what we mean by performing while transforming. We’ve delivered disciplined strategic progress right across BP – including building a high-quality offshore wind business, making great strides in our electrification agenda and setting ourselves up for further growth in the Gulf of Mexico.”