BP Repurchases Shares As Oil Price Recovery Boosts Profits


Oil giant BP BP 1.63%

PLC said it would increase shareholder returns after higher oil prices and strong trading results supported its first quarter earnings, the strongest sign to date that a recovery is underway in one of the sectors most affected by the pandemic.

Oil companies have gone through one of their worst years on record in 2020, with Covid-19 lockdowns stifling demand, hitting prices. As economies open up and demand begins to pick up, so do prices, supporting major oil companies even as they are increasingly uncertain about the prospects for their business as the world shifts to a low carbon energy.

BP on Tuesday announced replacement cost profit – a measure similar to the net profit figure that U.S. oil companies report – of $ 3.32 billion for the three months ended March 31, down from a loss of $ 628 million the previous year.

The company said strong earnings and income from asset sales helped it reduce its net debt to around $ 33 billion, from $ 39 billion in the previous quarter. Encouraged by its progress, BP announced that it would repurchase $ 500 million of shares in the second quarter.

“We have a pretty optimistic outlook on buyouts for the rest of the year, but we’re going to do it quarter by quarter,” said BP CEO Bernard Looney. “Depending of course on [the oil] price, I think next year you can very easily imagine a world where our distributions to shareholders are at or above pre-pandemic levels. “

The company said the rise in profits was driven by gas marketing and trading results, which Mr. Looney said benefited from the company’s good position for the cold weather in the United States and Asia. , which pushed up the prices of natural gas.

BP shares rose more than 2% at the start of trading in London before offsetting the gains.

Oil prices averaged $ 61 a barrel over the three months ending March 31, up more than $ 10 a barrel from the same period a year ago, as demand grew. continued to recover after lockdowns hit transport fuels, particularly last year.

BP said it expected demand for oil to continue to recover this year, driven by strong growth in the United States and China, vaccine rollouts around the world and less severe lockdown restrictions. . However, he said demand for oil will remain below pre-pandemic levels in 2021, as will refining margins. He said demand for gas will be above 2019 levels.

Analysts said oil companies are in better shape to profit from the recovery in oil prices after many industry players cut costs, downsized staff, and in some cases, including BP, downsized. dividends during the pandemic.

When it halved its dividend in August, BP pledged to return at least 60% of its excess cash as a buyout once it lowered its debt to $ 35 billion. He expected to achieve that goal no earlier than the fourth quarter of this year.

It hit the target sooner than expected, in part thanks to asset sales. BP plans to sell $ 25 billion in assets between the second half of 2020 and 2025 and is halfway to meeting the target with $ 14.7 billion sold.

Other major oil companies are also expected to post better first quarter results in the coming days. Royal Dutch Shell PLC is expected to release its report on Thursday and has signaled that its oil production unit will return to profit for the first time since before the pandemic.

American peers Exxon Mobil Corp.

and Chevron Corp.

are due to report on Friday. Exxon has indicated that rising oil and gas prices will boost profits, although it has warned of a $ 800 million hit linked to Texas, where unusual cold weather has triggered widespread blackouts over early this year.

BP’s strong performance in gas marketing and trading “is likely due to the effects of the storm in Texas,” said Biraj Borkhataria, analyst at RBC Capital Markets. “They were clearly a beneficiary.”

Since taking the helm in February of last year, Mr. Looney has begun the process of lifting BP out of its dependence on oil. The company aims to reduce its oil and gas production by 40% by 2030 and is investing in new areas such as offshore wind.

However, investors have been cautious about the changes, which some see as high risk.

Mr Looney acknowledged that the company’s ability to generate cash returns while switching to low-carbon energy had been called into question, but said the decision to buy back shares was a sign that it was was possible.

Write to Sarah McFarlane at [email protected]

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