ENERGY giant BP’s spectacular early paydown of a third of its towering $51billion (£36billion) debt pile today opened the taps for a return to pre-pandemic shareholder payouts.
The FTSE 100 major will buy back shares worth £360million in the next three months having reduced its net debt by £12billion a year early.
It came from a combination of ‘exceptional’ first-quarter gas trading performance, rising oil prices, improved refining margins and a flurry of asset disposals worth £3.5billion.
This took the group’s borrowings significantly below the £25billion target set by CEO Bernard Looney last August to kickstart the first of an expected wave of buybacks and bring some much-needed good news for investors whose dividends were halved at the outset of the pandemic.
BP’s first quarter saw an underlying replacement cost profit, its preferred measure, of £1.9billion against forecasts of £1.2billion and treble the £720million of the previous three months.
Shares, which hit a low of 193.46p in October and have lagged behind the recovery in the oil price, leapt by 1.8% to 301.75p today.
A dividend of 3.82p a share for the first quarter is in line with the previous quarter, but half that of a year earlier.
Looney introduced the share buyback scheme last August to replace BP’s long-held policy of ever-rising dividends and instead pour billions into its transition to become a net-zero carbon emitter by 2050.
It will see the group return 60% of surplus cash to investors with the remainder used to strengthen its balance sheet.
The company is also a much smaller one, having slashed 10,000 from its 70,000 global workforce last year.
Looney told investors today’s figures were a result of having pressed on with the new strategy rather than “hunkering down” through the pandemic. He said the firm was “getting in a groove after a year of huge change.”
An oil price “anything north of” $45-a-barrel will now lead to a surplus, he noted. Today it stood at $66.
He said: “It’s a story of delivering on our promise of competitive cash returns for shareholders while at the same time transitioning for the future.
“The new structure is up and running and we are beginning to see that show through in these results. The opportunity now exists for investors to get back over the coming years to those pre-pandemic levels of distribution per share.”
Steve Clayton, of Hargreaves Lansdown, said: “The energy sector had a tough pandemic but BP is now riding the recovery and reshaping the business for a low-carbon future.
“The crucial question, as yet unanswered is what returns will BP be able to achieve from its growing portfolio of green energy investments. In the meantime, investors can look to a dividend yield of 5%.”
CFO Murray Auchincloss said the group generated $11bn of cash inflow, a sum “significantly ahead of plan.”
He said: “We intend to distribute 60% of surplus cash flow for 2021 through share buybacks, with the remaining 40% being used to further strengthen our balance sheet. We’ll outline these plans further in our second quarter results.”
Ian McLelland, managing director of Edison Group said: “During this period, BP has continued its expansion into greener low-carbon areas of its business.
“Having achieved its $35 billion net debt target around a year earlier than planned, the balance sheet is in good shape to accelerate the company’s transformation.”
The debt target was reached early because BP received around $4.8 billion of disposal proceeds during the first quarter of the year, including its $2.4 billion sale of a 20% stake in a block of oilfields in Oman and $1 billion from the final tranche of its $5 billion sale to tycoon Sir Jim Ratcliffe’s Ineos of its aromatics and acetyls business.
It also included $400 million from selling a stake in Palantir, the AI giant whose tech BP has been using to help it find oil for nearly a decade. Palantir floated shares last September and they more than doubled since.
BP uses Palantir’s expertise in spotting patterns to help it assess potential finds but it is better known for its use by the CIA and, controversially, the US immigration authorities.
It was further helped by a strong operational performance in the first quarter, fuelled by a rebound in the oil price from $50 a barrel a year earlier to $61 on average.
Today’s results came as the group made its first foray into the USA’s lucrative retail electricity market, with a bid to supply homes and businesses in five US states - Illinois, Ohio, Texas, California and Pennsylvania.
BP Energy Retail’s affiliates own or control more than 2,000 megawatts of wind generation.
“It gives BP a huge new branding opportunity,” Tyson Slocum, director of Public Citizen’s energy program told Bloomberg. “They are already a massive power trader. Locking up tens of thousands of retail customers helps boost their trading by locking in a bunch of customers with fixed supply contracts.”