BP cuts debt load ahead of schedule

BP said on Monday that it had cut its debt load faster than expected thanks to a “very strong” first quarter, indicating it will also restart share buybacks sooner than forecast.

The oil company said it anticipated its results later this month would show its net debt fell from $38.9bn at the end of 2020 to its target of $35bn in the first quarter, having previously warned it was expected to rise in the first half of the year.

“This is a result of earlier than anticipated delivery of disposal proceeds combined with very strong business performance during the first quarter,” said Bernard Looney, chief executive. He said he would provide more details on share buybacks when the company reports its first-quarter results on April 27.

BP said that after reaching its net debt target it would return “at least 60 per cent of surplus cash flow to shareholders” through share buybacks, as long as it could maintain an investment-grade credit rating.

The company’s shares rose 3 per cent to 299.20p by late morning trade in London.

“This is a positive announcement from BP signalling strong performance in the first quarter of the year, the earlier-than-expected start of cash returns to shareholders, while at the same time providing evidence that it can deliver on its various strategic initiatives,” said Mark Nelson, analyst at Killik & Co.

BP said its strong performance in the first quarter was “driven by trading, the price environment and resilient operations”. Disposal proceeds would be at the top end of its previously announced $4bn to $6bn range.

Since Looney became head of BP last year, the oil group has indicated that it expects its large trading operation, which is one of the biggest of any of the energy majors, to play a significant role in the company’s plans to remain profitable as it invests more in cleaner forms of energy.

But the company provides little public information on how important trading could be to its bottom line, especially in years where oil prices fall substantially as they did in 2020.

Reuters reported last month that BP earned almost $4bn from its trading operations last year, citing an internal company presentation, while Royal Dutch Shell reported its own oil trading division made $2.6bn before counting what it made from trading natural gas and other non-oil fuels.

Analysts at Bernstein said they suspected part of BP’s strong trading result was due to dislocations in the liquefied natural gas market earlier this year, when prices in Asia shot up to record levels due to pinched supplies during an extreme cold snap.

“[LNG trading] appears to be a feature of this surprise announcement together with strong operations,” said Oswald Clint at Bernstein.