BP raises dividend and announces share buyback to win back investors

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BP PLC updates

BP raised its dividend and announced a $1.4bn share buyback programme after the energy company reported stronger than expected results for the second quarter.

The moves make it the latest group to try and tempt back investors by capitalising on the upswing in oil prices.

The energy major on Tuesday said that underlying profit on a replacement cost basis, the measure most closely tracked by analysts, rose to $2.8bn in the second quarter, surpassing expectations for about $2.2bn.

Chief executive Bernard Looney, who has started to pivot the business over the long-term towards renewable energy since taking the helm last year, said the company was raising its dividend 4 per cent and would have the “capacity” to increase it by a similar amount each year to 2025.

“On average at around $60 a barrel, we expect to be able to deliver buybacks of around $1bn per quarter and to have capacity for an annual increase in the dividend of around 4 per cent through 2025,” Looney said. “This shows we continue to perform while transforming BP.” 

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

Brent crude, the international oil benchmarks, fell below $20 a barrel in the second quarter of 2020 but is trading above $70 a barrel, marginally higher than it was before the pandemic.

BP is still reliant on oil and gas revenues for the vast majority of its earnings, with higher prices giving it the opportunity to funnel more cash to shareholders as well as investments such as offshore wind, solar and hydrogen.

Investors across the sector have demanded fatter returns, putting pressure on executives given the long-term uncertainty over the future of oil and gas, and the potential for companies to transform themselves into renewable energy giants.

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

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

BP said its stronger earnings were driven by stronger crude prices and margins, but it had been offset to a degree by lower results in gas marketing and trading. In the first quarter of 2021 underlying replacement cost profit had been $2.6bn.

The company said it has also used the windfall from the rally in energy prices to deleverage but slowed the pace in the second quarter after getting below its net debt target of $35bn in the first three months of the year. Net debt declined to $32.7bn in the quarter, down about $600m, after falling from $38.9bn at the end of 2020.

BP said the strength in oil prices meant it was raising its expectation for crude prices until 2030, but expected them to be lower after that point due to an “acceleration of the pace of transition to a low-carbon economy”. It partially reversed last year’s huge impairments, writing up the pre-tax value of its assets by $3bn in the quarter. 

At BP’s last quarterly results, when it announced a provisional buyback programme, Looney said he believed it “doesn’t need to be a choice” between prioritising investing in green energy or returning cash to shareholders. 

The company raised its dividend to 5.46 cents a share from 5.25, the first increase since slashing it last August when oil prices were depressed. The share buyback of $1.4bn was expected to be executed before the third-quarter results, compared with $500m in the second quarter.

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