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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 its debt faster than expected in a quarter when earnings trebled.

The UK energy major said on Tuesday that its first-quarter results were 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 has been dealt with a double blow in the past year. Its finances had taken a battering because of coronavirus and it had 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, which is below its target of $35bn. BP had previously said that once it had 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 awards under employee share schemes through buybacks at a cost of about $500m in the second quarter. But further buybacks would require board approval in the coming months.

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.

The company is emerging after a brutal year for the sector as the coronavirus crisis and government-imposed lockdowns and travel bans hurt energy demand and prices.

Brent crude is now back above $66 a barrel but the oil market’s recovery is hugely uncertain as new outbreaks of coronavirus emerge 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 to 5.25 cents. It has since maintained it at this level, 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 radical plan to become a cleaner energy company.

BP is shrinking production in the coming decade and reshaping its business for a lower-carbon future, which includes restructuring the company and cutting 10,000 jobs.

BP said in August 2020 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.

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