The BP logo is displayed at a London petrol station. Picture: REUTERS
The BP logo is displayed at a London petrol station. Picture: REUTERS

London — BP will become the first major European oil and gas company to resume share buy-backs since the 2014 price slump, a sign years of austerity have paid off.

Tuesday’s surprise announcement came as the British oil company reported a doubling in third-quarter profit, and in a week that crude prices hit two-year highs above $60 a barrel.

Coupled with strong growth in its oil and gas production and cash flow, the resumption of buy-backs in the fourth quarter lifted BP’s shares to their highest in more than three years, when oil prices were still about $100 a barrel. The move comes as BP gradually shakes off the impact of the deadly 2010 Deepwater Horizon spill, known as Macondo, that cost it more than $63bn in clean-up costs and penalties.

In one of the clearest signs yet that the oil company has turned a corner, BP said it was able to balance its books so far this year at $49 a barrel, excluding Macondo payments, as years of cost cuts pay off.

"After three years of oil-price correction and seven years after Macondo, we are now back into a more normal state of growing the business in the current environment and we can deal with prices that go lower," BP chief financial officer Brian Gilvary told Reuters.

BP is the first among Europe’s top oil and gas companies to re-introduce buy-backs, although some are making other moves to woo shareholders. Norway’s Statoil, for example, has said it will stop offering a "scrip" dividend — paid in shares rather than cash — in the fourth quarter, while France’s Total plans to do so next year. Royal Dutch Shell reports its results on Thursday.

"Today’s announcement is a very positive surprise, emphasising the progress made in the re-set of BP in the aftermath of Macondo and in the context of lower oil prices," UBS analysts said.

In one of the clearest signs yet that the oil company has turned a corner, BP said it was able to balance its books so far this year at $49 a barrel, excluding Macondo payments, as years of cost cuts pay off.

Four months ago, BP’s break-even level was still at about $60 a barrel. BP will be able to balance its books at $50 or even $45 a barrel next year, Gilvary said.

The London-based firm is working on an assumption that Brent crude will average $50 to $55 a barrel next year as global inventories gradually return to normal, he added.

Shares surge

The fortunes of Europe’s other top oil and gas companies diverged in the third quarter, with Italy’s ENI and Statoil missing profit expectations, while Total benefited from higher production and an increase in earnings at its huge downstream business.

BP also got a boost from growing production after starting six major projects so far this year, as well as from lower payments for the Macondo spill.

BP’s oil and gas production in the first nine months of the year rose by more than 9.6% from a year earlier to 2.427-million barrels of oil equivalent. It also saw improved earnings in its downstream business where refinery profit margins rose sharply after Hurricane Harvey knocked out about a quarter of US refininig capacity for several weeks.

At 9.15am GMT, BP shares were up 3.6% at 519.71p, after trading as high as 522.2p.

The oil major reported third-quarter underlying replacement cost profit, the company’s definition of net income, of $1.87bn, exceeding analysts’ forecast of $1.58bn. The company generated $1.8bn in surplus cash over the first nine months of the year, compared with $1.4bn in shares issued as part of the scrip dividend.

As of the current quarter, BP will buy back the equivalent number of shares it is issuing as part of its scrip dividend scheme through which investors can opt to receive dividend pay-outs in shares rather than cash. It will buy back about $1.6bn worth of shares a year in order to offset the dilutive effect of the scrip dividend programme, Gilvary said.

"The move to start buy-backs is welcomed by us to neutralise the scrip dividend and reduce the discount the market puts on the yield," said Rohan Murphy, energy analyst at BP shareholder Allianz Global Investors.

Reuters

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