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BP buybacks rocket beyond expectations

Bernard Looney says the major is a "cash machine" in current conditions, says BP will not be split up as competitors and investors move toward 'legacy' and 'green' listed entity models
BP buybacks rocket beyond expectations
  • Oil and gas major sees its preferred profit measure climb almost a fifth on strong oil and gas prices
  • Shareholders get a higher-than-expected buyback, with the total paid out to be $1.25bn 

The strength of oil and gas at the moment is obvious: just check forecourt prices or your energy bill. BP (BP) has bet on this to continue, announcing a share buyback programme for the rest of the year well above its surplus cash level in the third quarter.

Bernard Looney said the company was a “cash machine at these prices”. 

Investors will get a share of $1.25bn (£920m), following quickly on from the $1.4bn programme announced after its half-year results. 

Unlike last quarter, the buyback figure was above BP’s surplus cash for the period. CFO Murray Auchincloss said “confidence” was the reason the company had lifted the buyback programme beyond its 60 per cent surplus cash plan. He said commodity prices, projects ramping up and a higher level of earnings from its stake in Rosneft drove this confidence. 

BP’s preferred profit measure, underlying replacement cost profit, was 18 per cent above the previous quarter at $3.3bn. The company registered a $2.5bn pre-tax loss for the period but this was largely down to a gas price-driven non-cash accounting hit of $6.1bn based on changes to forecasts. 

Much of the focus of the results was on the hydrocarbon-driven profits, and Looney said the company would continue to invest in new oil and gas capacity. “We will deliver on our targets of reducing production [but] that does not mean there will not be new investment,” he said.

Looney also made clear he would not go looking for greater investor interest through green spinoffs. Italian major Eni (Ita:ENI) is planning a spinoff to help fund green spending, while at the end of October Dan Loeb at Third Point announced he had taken a stake in Royal Dutch Shell (RDSB) and called for it be split into a 'legacy' business and a renewables business. 

BP said it had increased its “electrons sold” by 45 per cent in the UK in the quarter. The company’s low carbon energy capital expenditure was $336m in the September quarter, compared with $43m the year before. Oil production and operations capex is around $1bn a quarter.

BP is raking the cash in and sending plenty of this on to shareholders. We remain bearish in the long term, however. Sell at 348p.

Last IC View: Sell, 299p, 3 Aug 2021