BP commits to share buybacks after first-quarter earnings treble

BP pulled out the stops to woo back investors, saying it was committed to buying back shares this year after cutting debt faster than expected in a quarter when earnings trebled.

The UK energy major said on Tuesday its first-quarter results had been driven by “exceptional” gas marketing and trading performance, significantly stronger oil prices and improved refining margins.

“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 Bernard Looney, chief executive.

BP was dealt a double blow in the past year. Its finances took a battering because of the coronavirus crisis and it struggled to get investors to reward it for its plans to transform itself into a cleaner energy company, with its share price taking a big hit in recent months.

The company’s net debt fell from $38.9bn at the end of 2020 to $33.3bn in the first quarter, beating its target of $35bn. BP previously said that once it achieved this goal it would return “at least 60 per cent” of surplus cash flow to shareholders through share buybacks.

BP said it would initially offset the dilution from the vesting of employee share schemes through buybacks at a cost of about $500m in the second quarter. While future buybacks would require board approval, Looney told the Financial Times the company also expected a cash surplus in the second half of the year.

Looney added that investors had questioned whether the company could stabilise its finances and hand back cash to shareholders while also spending money on its shift towards greener fuels.

“With the start of the buybacks . . . we have shown, I hope, that it doesn’t need to be a choice,” he said. “We can develop competitive cash returns for our investors and at the same time invest to transition BP to a low-carbon future.”

Underlying profit on a replacement cost basis, the measure of income tracked most closely by industry analysts, was $2.6bn in the three months to March 31. This beat analyst expectations of $1.6bn and compares with $791m in the same period the year before as the pandemic took hold across the globe.

BP’s share price rose more than 2 per cent in early trading on Tuesday.

The company is emerging from a brutal year for the sector as the pandemic hit energy demand and prices. Brent crude is now back above $66 a barrel as big global producers enact supply cuts and demand picks up. But the oil market still faces huge uncertainty amid new outbreaks of coronavirus in big consumer countries such as India.

BP’s reported profit stood at $4.7bn versus a loss of $4.4bn in the first quarter of 2020.

The company cut its dividend in August for the first time since the 2010 Deepwater Horizon disaster. It has since maintained it at 5.25 cents, including in the latest quarter.

Divestment proceeds totalled $4.8bn. The company has a goal to sell $25bn in assets by 2025 to cut debt and pay for green investments as part of a plan to become a net zero emissions business by 2050.

BP is shrinking production in the coming decade and reshaping its business, which includes restructuring the company and cutting 10,000 jobs.

BP said last August that returning extra cash to shareholders would only come after funding the dividend, cutting debt, shifting cash towards lower-carbon investments and sustaining its oil and gas business.