BP Adds to Buyback as Profit Rises on Higher Prices, Trading

(Bloomberg) -- BP Plc said it would buy back an additional $1.25 billion of shares, using the proceeds of surging energy prices to woo investors who have become disenchanted with oil and gas. 

The last of the western world’s supermajors to report third-quarter earnings, BP followed very much in its peers’ footsteps by reporting a big increase in profit from a year earlier. After years of poor returns, the industry is funneling most of this extra cash into repurchasing shares and paying dividends. 

That’s pleasing shareholders who are increasingly concerned about climate change, but lack of investment in new production has contributed to the current global energy crunch.

“The business is performing very well and is very leveraged to prices” Chief Executive Officer Bernard Looney said in an interview with Bloomberg TV on Tuesday. “Investors are increasingly liking the plans and strategy we have.”

BP’s third-quarter adjusted net income was $3.32 billion, compared with $86 million a year earlier. The London-based company beat the average analyst estimate of $3.01 billion. Cash flow from operations showed a more modest increase, rising to $5.98 billion from $5.2 billion a year earlier. 

The company already completed the $1.4 billion share buyback announced at its second-quarter results. The additional $1.25 billion share repurchase will take place prior to the publication of fourth-quarter results, according to the statement. If Brent crude remains above $60 a barrel, BP said it should be able to buy back $4 billion of shares and increase the dividend by 4% annually. 

BP exceeded expectations because of a “very strong” gas trading result, RBC Capital Markets analyst Biraj Borkhataria said in a note. While the next tranche of the buyback is smaller than the $1.5 billion RBC had been anticipating, the company should be able to increase the rate of share repurchases next year, he said. 

Shares of the company fell 2% to 349.8 pence as of 8:46 a.m. in London.

BP used some of its extra cash into paying down its liabilities, which had ballooned in early 2020 as prices collapsed due to the global pandemic. At the end of the three-month period, the company’s net debt was $31.97 billion, down from $32.71 billion at the end of the second quarter.

BP is not budging when it comes to capital expenditure. It will stick to a budget of $13 billion this year, unchanged from its previous guidance. The company remains “very focused on capital discipline,” Looney said. 

From 2022 to 2025, the company expects annual capital expenditure to be between $14 billion and $16 billion. France’s TotalEnergies SE, Exxon Mobil Corp. and Chevron Corp. also plan to increase investment next year, albeit from historically low levels. Royal Dutch Shell Plc has hinted that its capital expenditure budget would rise next year, thanks to its net debt falling well below a self-imposed $65 billion threshold.

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