BP in $14bn buyback plan despite lower profits

BP (BP.) will hand more cash to shareholders as it looks to catch up with fellow energy majors in terms of valuation and returns. The company, under new chief executive Murray Auchincloss and chief financial officer Kate Thomson, has announced buybacks two years in advance, with $14bn (£11bn) shares to be repurchased by the end of 2025, starting with $1.75bn a quarter until mid-2024. 

At the same time, BP will hand shareholders more cash by increasing the proportion of surplus cash flow that goes to buybacks and dividends from 60 per cent to 80 per cent. The company also tightened its annual capex outlook for the coming years to $16bn instead of a range between $14bn-$18bn, although Thomson said the higher payouts came more from the company’s confidence in the balance sheet and medium-term earnings than lower spending. BP expects to generate $46bn-$49bn in Ebitda during the current financial year, ahead of the $43.7bn in FY2023. 

The company reported lower profits for the fourth quarter and 2023, as oil and gas prices and refining margins fell compared with 2022. Underlying replacement cost profit, the company’s preferred measure, was $13.8bn for the year, a 50 per cent slide. In the previous week,  Exxon-Mobil (US:XOM) and Chevron (US:CVX) announced profits 35 per cent and 40 per cent behind 2022, while Shell (SHEL) saw a 30 per cent fall. 

Oil earnings saw the largest slide over the year, falling more than $8bn in replacement cost profit terms compared with 2022, to $11.9bn. But the gas and low-carbon division dropped $14bn in the fourth quarter alone, to $2.2bn, as prices tumbled. 

Auchincloss, in his first presentation after being confirmed as chief executive last month, said the company would stick to “absolute discipline” in terms of spending. He once again ruled out any major acquisitions, pointing to deals in the past two years being equal to those announced by Exxon-Mobil and Chevron in the second half of last year when aggregated. Last year, BP announced it would buy out its joint venture partner in renewables business Lightsource, while spending $1.1bn on US service stations through the TravelCenters acquisition. 

UK drivers will not be surprised to hear BP management also talking up the electric vehicle (EV) charging business – those waiting for their cars to be recharged spend twice as much at the shops as those just filling cars with petrol and diesel and driving off. Convenience profits climbed 40 per cent in the fourth quarter. 

RBC Capital Markets analyst Biraj Borkhataria said the updated buyback plan had come after “much debate” and said the extended guidance was a “welcome positive surprise”. Jefferies analyst Giacomo Romeo said "higher distributions and more visibility" were exactly what investors had pushed for. The company's shares climbed 5 per cent in response, taking it into positive territory for 2024 so far. Hold. 

Last IC View: Hold, 503p, 31 Oct 2023