LONDON – Oil and gas giant BP beat earnings expectations for the second quarter on Tuesday while expanding its dividend and share buyback program.
The British energy company announced it would buy back $ 1.4 billion of its own shares in the third quarter after generating a cash surplus of $ 2.4 billion in the first half of the year. It also increased its dividend 4% to 5.46 cents per share after halving it to 5.25 cents per share in the second quarter of 2020.
It expects buybacks of around $ 1 billion per quarter and a 4% annual dividend increase through 2025, based on an estimated average oil price of $ 60 a barrel.
The energy company posted a full-year adjusted replacement cost gain, used as a proxy for net income, of $ 2.8 billion. This contrasted with a loss of $ 6.7 billion in the same period last year and a net income of $ 2.6 billion for the first quarter of 2021.
Analysts polled by Refinitiv had expected a net profit of 2.06 billion US dollars for the second quarter.
CEO Bernard Looney told CNBC on Tuesday that a combination of strong underlying performance, an improving balance sheet and higher commodity prices enabled the company to increase its returns for shareholders.
“We have raised our own plan for the next few years from $ 50 to $ 60 (average oil price) – this is due to strong demand and supply is becoming scarcer, especially for US shale,” he said.
The results reflect a broader trend across the oil and gas industry as large energy companies attempt to reassure investors that they have gained a more stable base amid the ongoing coronavirus pandemic. British-Dutch multinational Royal Dutch Shell, France’s TotalEnergies and Norway’s Equinor announced share buyback programs last week.
However, the share prices of the world’s largest oil and gas companies do not yet reflect the improvement in earnings, and the industry continues to face a variety of uncertainties and challenges.
BP’s shares started Tuesday’s session nearly 15% year-to-date, after plummeting around 47% in 2020. The company’s stock rose another 2.3% in early trading Tuesday.
Operating cash flow was $ 5.4 billion at the end of the second quarter, including the approximately $ 1.2 billion annual payment the company makes for the 2010 Gulf of Mexico oil spill.
Meanwhile, net debt fell from $ 33.3 billion in the first quarter to $ 32.7 billion, the fifth straight quarter decrease from $ 51 billion in the first quarter of 2020.
A year after announcing its strategic overhaul, announced in August 2020, the company highlighted that it has built a 21 gigawatt renewable energy pipeline and brought eight major oil and gas projects online.
In the third quarter, the production forecast was also raised, citing the completion of seasonal maintenance work and the ramp-up of major projects.
Looney told CNBC that the eight new projects, along with the cost savings made possible by BP’s major restructuring that cut more than 6,000 jobs, would increase production efficiency.
Stronger raw material prices
BP’s financial results come after a period of higher commodity prices. International benchmark Brent crude oil futures rose an average of $ 69 per barrel in the second quarter, from an average of $ 61 in the first three months of the year. Brent futures traded at around $ 72.74 a barrel on Tuesday morning.
Oil prices have rallied and hit multi-year highs in recent months, and all three of the world’s top forecasting agencies – OPEC, the International Energy Agency, and the US Energy Agency – now expect a demand-driven rebound in the second half of the year.
It comes after what BP has called “a year like no other” for the global energy markets.
In its Benchmark Statistical Review of World Energy, published July 8, BP said the company had witnessed some of the most dramatic events in the history of the global energy system over the past seven decades. These crises included the Suez Canal crisis in 1956, the oil embargo in 1973, the Iranian revolution in 1979 and the Fukushima disaster in 2011.
“All moments of great turbulence in global energy,” said Spencer Dale, chief economist at BP, in the report. “But all pale compared to the events of last year.”
The ongoing Covid-19 crisis triggered a historic oil demand shock in 2020, in which large oil companies endured a brutal 12 months after practically every measure. The pandemic coincided with falling commodity prices, dwindling profits, unprecedented write-offs and tens of thousands of job cuts.
Analysts told CNBC ahead of its latest second quarter earnings figures that while energy companies were likely to seek a clean health certificate, investors were expected to be “tremendously skeptical” of oil’s long-term business models and Gas companies. This was mainly a consequence of the worsening climate emergency and the urgent need to move away from fossil fuels.