BP boosted by early restart to share buybacks

Bernard Looney has overseen a more rapid fall in debt than expected. Photo: Jason Alden/Bloomberg

Laura Hurst

April 07 2021 02:30 AM

Oil giant BP said says it has achieved its target of reducing its debts to $35bn (€30bn) ahead of time and the company, headed by Kerryman Bernard Looney, is to restart share buybacks a year earlier than expected.

Yesterday’s news reflects an accelerated pace of asset sales and improved business performance, with BP's trading division capitalizing on dramatic moves in energy markets.

It marks a potential turning point following a tumultuous year for the industry, in which fuel sales and refining margins were hammered by the impact of the coronavirus pandemic.

So far this year, a "very strong" business performance driven by trading, prices and "resilient operations" has brought borrowings down, the London-based company said.

Having reached its debt goal, "BP is committed to returning at least 60pc of surplus cash flow to shareholders by way of share buybacks”.

The news will be a boon to investors, many of whom had seen peer Royal Dutch Shell as being ahead of the game in returning cash to shareholders, having slightly raised its dividend only two quarters after it was slashed. BP cut its payout last August, a policy u-turn after boosting it just a few quarters earlier.

BP's shares rose 3.4pc to 299.75p (€3.50) in London, extending their gain this year to 18pc.

"Given where the stock price is, we expect more than 60pc of surplus free cash flow to be allocated to buybacks," Oswald Clint, an analyst at Sanford C. Bernstein said in research note.

The energy company also made a strong profit from liquefied natural gas trading in the first quarter, he said.

While the market welcomed BP's announcement, the firm's value is still down by a third from pre-pandemic levels.

That reflects struggles on several fronts, from the lingering effects of the virus crisis to the overhaul of the business amid the energy transition. BP has laboured over the past year to convince investors that it can generate high returns while slashing emissions and ramping up clean-energy investments.

It is also selling a raft of assets, including a stake in a large Omani gas project and an interest in data firm Palantir Technologies, and plans to offload $25bn-worth by 2025.

BP received around $4.7bn from disposals in the quarter through March, and now expects such proceeds in 2021 to be at the top end of its $4bn-$6bn range, it said.

BP is among a number of oil majors and independent commodity trading houses to profit from the large swings in prices during the pandemic.

The company doesn't break down how much money its trading unit makes, but Mr Looney has said the division will be key in boosting returns from investments in renewables, which are typically 5-6pc.

BP's net debt at the end of 2020 was $38.9bn. It said at the time that the figure would likely increase in the first half of 2021.