BP slows pace of share buybacks as first-quarter profit dips
BP slowed the pace of share buybacks as lower energy prices trimmed its cash flow.
While the London-based giant’s profit beat estimates thanks to a strong oil and gas trading performance, the surplus cash flow it uses to boost investor returns shrank by about 40 per cent. BP said it will repurchase US$1.75 billion of shares before announcing second-quarter results, down by US$1 billion from the prior period.
Even as Big Oil’s earnings decline from the record levels seen in 2022, they remain strong by historical standards and companies are still generating a lot of extra cash. Nevertheless, BP’s shares fell as much as 4.4 per cent as the buyback came in smaller than expected.
The first-quarter results and guidance for the rest of the year “suggests that free-cash-flow momentum is likely to be weaker from here, although this could improve later,” RBC analyst Biraj Borkhataria said in a note.
First-quarter adjusted net income was US$4.96 billion, down from US$6.25 billion a year earlier but comfortably beating the average analyst estimate of US$4.28 billion. BP said the figures reflected an “exceptional” performance in gas marketing and “very strong” results from oil trading. That offset the impact of lower energy prices and refining margins.
Shares of the company were 3.4 per cent lower at 516.3 pence as of 8.10 am in London.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
BP’s surplus cash generation of US$2.28 billion was below expectations, but that was due to a working capital build of US$1.4 billion, RBC’s Borkhataria said. On an underlying basis, cash flow from operations beat estimates, he said.
BP is executing a strategy laid out earlier this year to pump more oil and gas than previously planned in the near term, while also increasing investment in low-carbon energy. In April, the company brought a major new oil platform online in the Gulf of Mexico and has said it will consider deals to boost fossil fuel production further.
That’s angering activists and some investors, but it appeals to other shareholders who want to see higher cash returns from an industry that had struggled for several years. BP shares have risen about 30 per cent over the past year.
“As we had expected, softening prices translated into a lower second-quarter buyback tranche at US$1.75 billion (US$2.75 billion in the first quarter). Declining net debt and maintained capex guidance are further positives, though we flag that earnings strength may not be repeatable given the significant trading contribution in the first. – Will Hares, BI global energy analyst.
The company said it plans to keep growing returns to investors by buying back about US$4 billion of shares and increasing the dividend by 4 per cent annually, assuming capital expenditure is held at the lower end of the US$14 billion to US$18 billion range and Brent crude trades near US$60 a barrel. BLOOMBERG
Share with us your feedback on BT's products and services
