Home MarketsEurope & Middle East BP accelerates the pace of share buybacks despite the fact that there are no profits for the entire year

BP accelerates the pace of share buybacks despite the fact that there are no profits for the entire year

by SuperiorInvest

In 2020, BP set out its ambition to become a net-zero company “by 2050 or sooner”.

Matt Cardy | Getty Images News | fake images

BP shares rose 6% on Tuesday after the oil giant accelerated the pace of its buybacks and raised its dividend, despite a drop in annual profits.

The energy major increased the pace of its share buybacks and announced intentions to execute a $1.75 billion share buyback before reporting first-quarter results. The company said it was committed to announcing a $3.5 billion share buyback during the first half of the year.

BP also announced a dividend per ordinary share of 7.27 cents for the last three months of 2023, up 10% compared to the same period last year.

The oil giant posted an underlying replacement cost profit, used as a proxy for net profit, of $13.8 billion for 2023, a sharp drop from a record $27.7 billion a year earlier. Analysts had forecast net profit of $13.9 billion for the full year 2023, according to a consensus compiled by LSEG.

BP reported a fourth-quarter net profit of nearly $3 billion, beating analysts’ expectations of $2.6 billion.

As the oil major’s London-listed shares soared to the top of the pan-European Stoxx 600 index on Tuesday morning, analysts at RBC Capital Markets described BP’s commitment to buy back shares beyond the first quarter of 2024 as a “welcome positive surprise.”

They added that BP’s plan to execute share buybacks of at least $14 billion through 2025, subject to maintaining a strong investment grade rating, was probably not expected by the market.

“With BP setting specific EBITDA targets for 2025, which are also above consensus expectations, we believe the commitment on the payments front shows confidence in future delivery,” RBC Capital Markets said in a research note. EBITDA refers to earnings before interest, taxes, depreciation and amortization.

“It seems like, in particular, oil investors right now are really responding to those shareholder returns,” Noah Brenner, executive editor of Energy Intelligence, told CNBC’s “Squawk Box Europe” on Tuesday.

“What BP has done is not only exceed the expected buyback in the next two quarters, but also provide clarity on what that buyback will be – and this is a minimum amount of what that buyback will be – over the next two years. And That has been a big sticking point among investors,” he added.

“Royal impulse”

BP said its fourth-quarter results reflected strong gas trading and “significantly lower” industry refining margins. Net debt for the period stood at $20.9 billion at the end of 2023, up from $21.4 billion at the end of 2022.

“Looking back, 2023 was a year of strong operational performance with real momentum in delivery across the business,” BP Chief Executive Murray Auchincloss said in a statement.

“We are confident in our strategy, in acting as a simpler, more focused and higher value company, and we are committed to increasing long-term value for our shareholders.”

British rival Shell on Thursday reported stronger-than-anticipated full-year profits, announcing a 4% increase in its dividend and a new $3.5 billion share buyback program.

In the United States, Exxon Mobil and Chevron beat expectations for quarterly profits, although their results also fell sharply compared to a year ago amid weaker fossil fuel prices.

Strategy

BP’s latest results come as the company faces pressure from an activist investor over its strategy.

In a letter sent in October to BP Chairman Helge Lund and then-interim CEO Murray Auchincloss, Bluebell Capital Partners urged the company to increase its investments in oil and gas and reduce spending on clean energy. The letter was first published by the Financial Times last week.

Since then, Bluebell Capital’s Giuseppe Bivona has expressed frustration at the “totally disappointing” performance of BP’s share price relative to its US and European peers. Bivona told CNBC’s “Squawk Box Europe” program on Jan. 30 that BP should consider deploying its capital in a “rational way.”

In response to the letter’s publication, a BP spokesperson at the time said the company “appreciates the constructive engagement” with its shareholders.

BP has also faced a mediatized leadership change. The company named Murray Auchincloss as permanent chief executive last month, about four months after his predecessor Bernard Looney resigned after less than four years in the role.

Under Looney’s leadership, BP promised that its total emissions would be 35% to 40% lower by the end of the decade.

The company, which was one of the first energy giants to announce plans to reduce net emissions to zero “by 2050 or sooner,” watered down these climate plans last year. BP said almost a year ago that it would instead aim for a 20% to 30% cut, noting that it needed to continue investing in oil and gas to meet demand.

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