BP Plc followed its Big Oil peers by increasing dividends and share buybacks as higher crude prices boosted profit.
Oil majors - with the notable exception of Exxon Mobil Corp.'s oil companies are raising return as they express confidence that the worst of the slump caused by the coronavirus pandemic is over. The goal is to woo investors who are becoming increasingly wary about the future of fossil fuels in a changing climate.
BP will increase its dividend by 4% to 5.46 cents a share and buy back $1.4 billion of stock in the third quarter, said Chief Executive Bernard Looney.
'What you see around the dividend is really a story of confidence," Looney said in an interview with Bloomberg TV on Tuesday. 'Confidence in the underlying performance of the business, confidence in the balance sheet.
Shares of the company rose 5.6% to 305.9 pence as of 12: 38 p.m. in London.
If oil averages about $60 a barrel, Looney expects to be able to continue increasing its dividend by about 4% annually and repurchase $1 billion of shares each quarter until 2025, BP said.
This would lift the total shareholder returns of RBC Capital Markets analyst to about 10%, at the top end of its peer group, Biraj Borkhataria said in a note. It would still leave dividends well below the level of 10.5 cents a share, according to Bloomberg calculations.
Looney's pledges that go further than the distribution policy BP outlined earlier this year. The turnaround reflects the impact of higher energy prices, but also demands from shareholders who weren't satisfied in early 2021 with the company's plans.
'Twelve months after when we laid out our strategy, Looney said the world is in a very different place. Global GDP is back to Pre-pandemic levels, vaccines are clearly working and people are traveling more.
Despite the good news for income seekers, the company is now being stretched again amid a higher spending budget, lower payouts and planning for the energy transition, says Bloomberg Intelligence analyst Will Hares. The problem is exacerbated by the steady, but long returns from renewables projects where benefits are accrued over a much longer timeframe than oil developments.
BP will continue to keep its historically low spending budget of $13 billion for this year, of which $2 billion will be allocated for its growing low-carbon business. The firm is ratcheting up low carbon spending from half a billion dollars in 2019 to as much as $4 billion in 2025.
The second quarter adjusted net income of the London-based company was $2.8 billion, compared with a loss of $6.68 billion a year earlier, according to the statement. That was the average estimate of $2.13 billion by Bloomberg poll of 19 analysts.
Higher shareholder returns show the oil majors' confidence that higher oil and gas prices are here to stay. BP increased its Brent crude price assumptions for 2021 to reflect anticipated supply constraints, leading to the reverse of a pretax net impairment of $3 billion
The London-based major has a'more bullish" outlook on oil over the next five to 10 years on the back of lower supply constraints, OPEC desire to maintain 'robust prices' and changing dynamics in the U.S. shale business, Looney said in an analyst call.
Having met its net debt target of $35 billion in the first quarter, BP net liabilities dropped further to $32.71 billion in the period thanks to the sale of assets. The firm has a goal of reaching $25 billion of divestments by 2025 to fund the expansion of its low-carbon business.