BP begins second quarter share buybacks after cancellation of net debt target

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Energy giant BP fell back into the dark in the first quarter of 2021 due to rising oil prices and “exceptional” gas marketing and trading performance.

Combined with asset sales, these factors helped London-listed BP lower its net debt below its target of £ 25.2 billion a year earlier.

After achieving and “withdrawing” this target, BP bosses said they had committed to returning at least 60% of excess cash flow to shareholders through buybacks, which should increase the value of the company. ‘action.

The company will begin by repurchasing £ 360 million of shares in the second quarter to offset the dilution of awards made under its employee share ownership plans.

Analysts said the resumption of buybacks would be welcomed by investors, who had to endure a 50% drop in BP’s dividend last year.

BP chief executive Bernard Looney said the dividend was “the first call for cash” in the company’s financial framework and that the board wanted to give investors “the edge they deserve” .

Mr Looney also said it “made perfect sense” to start repurchasing stocks “with stock prices where they are today”.

However, the BP share price fell slightly today, 0.42% to 295.30p, about 40% lower than in early January 2020.

The Covid-19 pandemic and a feud between Russia and Saudi Arabia subsequently sparked an oil price rout, pushing BP into pre-tax losses of £ 18.1 billion across the board. year 2020.

BP appears to be on the mend, largely thanks to a rebound in oil and gas prices, with Brent crude averaging $ 61 a barrel in the first quarter of 2021, up from $ 50 in the corresponding period of the year. last year.

The company posted pre-tax profits of £ 4.7bn in the reporting period, a marked improvement over losses of £ 3.2bn the previous year, as revenues climbed by 18% to £ 26.3 billion.

Net debt fell to £ 23.9bn at the end of March, from £ 27.9bn at the end of the year.

BP has warned that its annual payment of £ 860million before tax on the Gulf of Mexico oil spill and additional severance pay linked to the 10,000 job cuts announced last year would lead to a cash shortfall in the second trimester.

But the supermajor expects to generate a surplus in the second half of the year if the price of oil stays above $ 45 a barrel.

In addition, BP is accelerating towards its divestment target of £ 18bn by 2025, with £ 10.5bn in deals already closed or completed and £ 7.2bn in proceeds received.

Mr. Looney said BP has accomplished a lot in the nine months since unveiling its strategy to move from an international oil company to an integrated energy company.

Earlier this year it struck a £ 790million deal to operate two US offshore wind projects with Equinor and announced plans for the UK’s largest blue hydrogen production facility at Teesside.

BP has also partnered with Energie Baden-Württemberg in Germany to enter the UK offshore wind market, securing leases for a total of three gigawatts of projects in the East Irish Sea.

However, Russ Mold, chief investment officer for financial services firm AJ Bell, said there was “no doubt” that the oil and gas business was still fueling BP.

Mr Mold said the company has its work cut out for keeping its balance sheet in check, continuing to invest for the future and keeping shareholders happy.

He said: “Reaching its net debt target a year earlier is a good start and it allows the company to resume share buybacks in the second quarter.

“However, the cash flow outlook is less positive for the second quarter and looking ahead, it looks like something has to go if BP is to truly complete its ambitious transformation into a zero carbon company.”

Biraj Borkhataria, associate director of European research at RBC, said he expected a strong performance from BP in the first quarter and the company “did not disappoint”.

Mr Borkhataria said BP was created for a year that looked “significantly different from 2020” and that he expects buybacks to “accelerate” later in 2021.

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