BP Raises Possibility of Dividend Boost as Debt Poised to Fall

(Bloomberg) -- BP Plc is ready to consider boosting payouts to shareholders who stuck with the company through almost a decade of crises, as long as it can cut down debt.

While net debt at the British oil major has risen quarter-on-quarter, Chief Financial Officer Brian Gilvary insists borrowings will shrink this year. The first-quarter increase was driven by a final $1.2 billion payment to the U.S. Department of Justice for the 2010 Gulf of Mexico oil spill, and further payouts linked to the catastrophe should fall precipitously, he said on a conference call.

BP Raises Possibility of Dividend Boost as Debt Poised to Fall

Additionally, BP still hasn’t seen the full benefit of crude’s rally. It’s been cutting the fat acquired during the days of $100-a-barrel oil, and those cost savings may usher in a cash windfall now that prices are rising again. With that in mind, there’s “no question” the board is ready to talk about the dividend, especially in the second half of the year, Gilvary said.

Some competitors have already started rewarding long-suffering shareholders. France’s Total SA said last week it would raise the dividend, while Exxon Mobil Corp. increased its payout more than expected. Nonetheless, Royal Dutch Shell Plc said it’s too early to start a planned buyback program, which would offset the dilution stockholders incurred during the slump.

BP has less wiggle room in its balance sheet than Anglo-Dutch rival Shell. It may be addressing dividend hikes too soon, according to Will Hares, an analyst at Bloomberg Intelligence in London. Gilvary’s comments “appear premature,” he said, “and would represent an ambitious allocation of free cash given gearing remains at the high end of guidance.”

©2018 Bloomberg L.P.