Written by Norman Isaac Mwambazi

BP lifts dividend, launches $1.4B in share buybacks as profit surges

The oil sector continues to benefit from the current, relatively high crude oil prices, and energy companies have in the …

The oil sector continues to benefit from the current, relatively high crude oil prices, and energy companies have in the previous week or so posted strong figures in their quarterly earnings reports, with others revising their expectations for the coming quarter. A few others have gone on to raise their dividends to shareholders in a bid to woo investors. One of these oil companies is British energy giant BP PLC.

In an interview with Bloomberg, BP Chief Executive Officer (CEO) Bernard Looney announced that in the third quarter of the 2021 fiscal year (Q3 FY2021), the company would increase buy back $1.4 billion of its stock and increase its dividend to shareholders by 4% to 5.46 cents a share.

Looney said that this move shows how confident the company is in its future performance. He expects BP to post great figures on its balance sheet from the third quarter onwards if its performance in the previous quarters, including the lows of the COVID-19 pandemic, can be taken as an indication of what’s to come. In the premarket trading session of this morning of Tuesday, August 3, 2021, BP’s shares rose 2.2% to 296.2 pence ($25.55). This multinational oil and gas company has a market capitalization of $81.40 billion.

BP shareholders have a reason to smile in the next four years or so, as the company expects to continue increasing its dividend by about 4% each quarter until 2025 if oil prices average $60 a barrel. This will be in addition to buying back $1 billion of shares each quarter until 2025.

RBC Capital Markets analyst Biraj Borkhataria said in a note to investors and analysts that BP’s plan would lift total shareholder returns to about 10% at the top end of its peer group. However, according to Bloomberg, this would still be below the pre-pandemic dividend level of 10.5 cents a share.

This plan looks good from a shareholder’s point of view; however, they were not happy with the company’s distribution policy outlined earlier year, as they demanded better results and forged a way forward for better performance. Last year on October 20, BP’s stock dipped as low as $15.48 a share. It has grown 58.3% since then.

Earnings

The London-based energy giant BP released its Q2 FY2021 earnings results this Tuesday morning with figures that exceeded consensus analysts’ estimates. The report shows that BP’s Earnings Per Share (EPS) is 83 cents on its American Depositary Share (ADS). This is on a replacement cost basis, and it beat consensus analyst expectations surveyed by Zacks Investment Research, Inc., which was 61 cents per ADS.

The Zacks Consensus Estimate of BP’s earnings for Q2 FY2021 has been revised upwardly four times in the past 30 days. According to Yahoo Finance, this is the second time BP has beaten consensus estimate in the previous four quarters, averaging a rise of 9.4%.

Furthermore, BP registered revenues of about $37.6 billion in Q2 FY2021, beating Zacks Consensus Estimate of $34.5 billion.

In Q2 FY2021, BP managed to bounce back from a loss of $6.68 billion registered in Q2 FY2020 to reporting a net income of $2.8 billion. Early in this quarter, Bloomberg polled 19 Wall Street analysts, and their consensus estimate for BP’s net income in Q2 FY2021 was $2.13 billion. BP smashed that estimate threefold.

The company increased its price assumptions for Brent crude to 2030 due to expected constraints in the supply chain.

BP registered a net debt of $35 billion in Q1 FY2021 as per its target, and the company’s net liabilities dropped even further to $32.71 in Q2 FY2021 thanks to the sale of assets. BP plans to reach $25 billion of divestments by 2025 to fund the expansion of its low-carbon business.

Looney believes that the company is now on an upward movement, having braved the lows of the pandemic, saying that the world is in a different place from where it was 12 months ago because “the vaccines clearly are working, and people are travelling more,” so the company will grow more post-pandemic.

Production

In Q2 FY2021, BP reported that it produced 875000 barrels of oil equivalent per day (MBoe/d), which was higher than what the company made in the same quarter a year ago, which was 869,000 MBoe/d. On average, the company sold oil liquids for $61.69 per barrel in Q2 FY2021; as mentioned earlier, this price is almost triple the $22.59 that the company priced its liquids per barrel in Q2 FY2020.

BP’s natural gas prices also increased in Q2 FY2021 to $4.14 per thousand cubic feet, from the $3.12 it was at 12 months ago. Overall, BP saw its price realization increase from $18.63 to $28.97 per barrel of oil equivalent that was reported in Q2 FY2021. The company plans to significantly reduce its oil output by 40%, equivalent to 1 million barrels per day, by 2030.

Russ Mould, the Investment Director at stock brokerage firm AJ Bell, said that BP’s total pay-out to shareholders this fiscal year is over £4.4 billion (about $6.13 billion), which is more than 7% of its market cap.