BP continues oil pay-out frenzy

BP (BP.) has reported a June quarter profit well above expectations, even as high oil prices and other oil majors’ results have shown the first half of 2021 was a golden time for generating cash. BP’s underlying replacement cost profit, its preferred profit measure, was $2.8bn (£2.01bn), 30 per cent above analysts’ consensus forecast and 6 per cent ahead of the March quarter. 

This will see investors get both a 4 per cent increase in the quarterly dividend and $1.4bn in buybacks. Additionally, BP has announced a buyback plan of $1bn per quarter if the oil price stays above $60 a barrel (bbl). 

Crude prices climbed in recent months because of increased demand from the global Covid-19 reopening and the Opec-plus cartel maintaining supply curbs. This threatened to fall apart last month amid disputes between Saudi Arabia and the United Arab Emirates. The lack of agreement pushed oil prices close to $80/bbl, although Brent crude has since fallen back to around $71/bbl as the delta variant has spread and the expanded cartel reached agreement to add 400,000 barrels of oil per day (bopd)

BP chief executive Bernard Looney said the higher dividend came at the same time as the company was “making good progress” on its strategy to become an integrated energy company. This new policy is at odds with the flat dividend, variable buyback plan announced last year. Looney said this change came because of confidence in the company’s underlying performance as well as the various Covid-19 vaccines supporting a return to pre-pandemic oil and gas demand. 

Capital spending for the low carbon energy segment was $42m in the June quarter, compared with $1.1bn for oil production and operations, although these figures were much closer in the March quarter, when BP spent $1bn on offshore wind projects. 

Looney highlighted eight new oil and gas projects coming online in the past year, adding 200,000bopd to BP’s output. He said 12 or 13 projects would come online in the next few years. 

Jefferies analyst Giacomo Romeo said BP had gone to “the high end” of the sector in terms of shareholder pay-outs, with an implied yield of 10 per cent at $60/bbl. Last week, Royal Dutch Shell (RDSB) boosted its quarterly pay-out 38 per cent to 24¢, on top of $2bn in buybacks that will be completed in the second half. 

Consensus estimates compiled by FactSet see full-year adjusted earnings per share of 47¢, compared to a 28¢ loss last year. BP has gone all-out to bring back investors, and with a strong yield return its investment case must appeal to those seeking payouts. The longer term picture, including a 41 per cent drop in share price in two years while the FTSE 100 dropped 4 per cent, is a better indication for us than the recent run-up. Sell. 

Last IC View: Sell, 299p, 27 Apr 2021