BP to buy back $1.25bn of shares as profit surges

BP will buy back an additional $1.25bn worth of shares, using the proceeds of surging energy prices to woo investors who have become disenchanted with oil and gas. 

The last of the western world’s supermajors to report third-quarter earnings, BP followed its peers by reporting a big increase in profit from a year earlier. After years of poor returns, the industry is funnelling most of this extra cash into repurchasing shares and paying dividends. 

That is pleasing shareholders who are increasingly concerned about climate change, but a lack of investment in new production has contributed to the current global energy crunch.

“The business is performing very well and is very leveraged to prices,” CEO Bernard Looney said in an interview with Bloomberg TV on Tuesday. “Investors are increasingly liking the plans and strategy we have.”

BP’s third-quarter adjusted net income was $3.32bn, compared with $86m a year earlier. The London-based company beat the average analyst estimate of $3.01bn. Cash flow from operations showed a more modest increase, rising to $5.98bn from $5.2bn a year earlier. 

The company already completed the $1.4bn share buyback announced at its second-quarter results. The additional $1.25bn share repurchase will take place before the publication of fourth-quarter results, according to the statement. If Brent crude remains above $60 a barrel, BP said it should be able to buy back $4bn of shares and increase the dividend by 4% annually. 

BP exceeded expectations because of a “very strong” gas trading result, RBC Capital Markets analyst Biraj Borkhataria said in a note. While the next tranche of the buyback is smaller than the $1.5bn RBC anticipated, the company should be able to increase the rate of share repurchases next year, he said. 

Shares of the company fell 0.3% to 356p in early trade in London.

BP used some of its extra cash into paying down its liabilities, which had ballooned in early 2020 as prices collapsed due to the global pandemic. At the end of the three-month period, the company’s net debt was $31.97bn, down from $32.71bn at the end of the second quarter.

Unlike it’s Big Oil peers, BP is not budging when it comes to capital expenditure. It will stick to a budget of $13bn next year, unchanged from its previous guidance. The company remains “very focused on capital discipline”, Looney said. 

France’s TotalEnergies, ExxonMobil and Chevron have all promised to increase investment next year, albeit from historically low levels. Royal Dutch Shell also hinted that its capital expenditure budget would rise next year, thanks to its net debt falling well below a self-imposed $65bn threshold.

Bloomberg News. More stories like this are available on bloomberg.com