BP chief Bernard Looney today unveiled an ambitious share buyback strategy which could see the energy giant purchase almost $20 billion of its own stock - around a quarter of its current market value - by 2025.
The proposed schedule for a $1billion buyback each quarter over the next four years depends on sustained near-term buoyancy in the benchmark Brent crude price of at least $60 a barrel.
It would be accompanied by a 4% annual dividend hike, taking annual payouts to 6.49 cents per share by the end of the period - a significant bump to the 5.25 cents outlined in a far less bullish market update last year.
Total shareholder returns would be lifted to about 10%, at the top end among big oil peers but still below the 10.5 cents routinely handed out before the company slashed dividends as Covid-19 shredded the world economy.
Looney said: “Twelve months on from when we laid out our strategy, the world’s in a very different place. Global GDP is now back to pre-pandemic levels, the vaccines clearly are working and people are traveling more.
“What you’re seeing around the dividend is really a story of confidence. Confidence in the underlying performance of the business, confidence in the balance sheet.”
Shares in BP rose by 3.5%, or 10.15p, to hit 300.0p, leading the FTSE 100. They are up around 18% so far this year but remain stubbornly below a pre-pandemic high of 580p.
Looney announced the buyback programme as BP reported second-quarter profit of $2.8 billion, compared to a loss of $6.7 billion in the same period last year. This beat a consensus forecast of $2.13 billion, and was largely down to recovery in demand for fuel, particularly for aviation.
The group said it has reached its net debt target of $35 billion, partly thanks to the sale of assets, to end the quarter $32.7 billion in the red. The balance sheet has been boosted by the reversal of $3 billion in writedowns of assets.
BP is following its rivals by increasing shareholder returns in an effort to lure back investors who are becoming increasingly wary about the future of fossil fuels in a changing climate.
Today’s update was notably less tilted towards those green pledges, where BP is leading peers with plans for a 40% reduction in oil and gas production by 2030 bolstered by major investments in offshore wind, solar energy and hydrogen alongside a network of EV charging stations.
Michael Hewson, of CMC Markets, said of the buyback plan: “It’s certainly ambitious but it’s easy to make promises. Pretty much all of the profits BP has reported today come from areas they have pledged to cut. The numbers might add up today, but I don’t see how they will for much longer.”
Giacomo Romeo, analyst at Jefferies, said BP's buybacks and dividend growth were at the high end of expectations but saw risks from the company's exposure to Russia - via its 19.75% stake in Kremlin-controlled Rosneft - and in the execution of its energy transition strategy.
Stuart Lamont, at Brewin Dolphin, added: “Like Royal Dutch Shell’s last week, BP’s results reflect a more sustained period for oil prices, underpinning its ability to increase shareholder returns.
“While that supports the investment case in the short term, looking further ahead there is a lot for the company to do in its aim of transitioning to net zero.
“Progress is being made but BP has a tricky balancing act if it is to remain attractive for investors now, while keeping an eye on its long-term plans.”
Energy writer Will Kennedy said Looney is “either confident in the future or making himself a hostage to fortune.”