The BP share price has risen over 15% since its full-year numbers back in February, despite the oil giant posting a $5.7bn loss for last year. Today’s Q1 numbers look set to provide a further lift, after the company announced the return of share buybacks.
BP share price gains on rising optimism
BP's share price is up 2.85% to 305p in early trading this morning. A large part of the reason behind this rebound has been optimism over the global economic outlook, which has raised expectations of higher demand for oil, as well as distillates and other fuel products as consumers start to move around more.
A few weeks ago, BP said it was set to meet its end of year debt target of $35bn by the end of Q1, with the sale of a 20% stake in its Oman gas block programme for $2.4bn in February. BP also received another $1bn from INEOS in a final instalment of the sale of its petrochemicals business. In doing so, the company announced that it was now retiring its debt target, having lowered net debt to a more sustainable $33.3bn.
This divestment process is part of CEO Bernard Looney’s target of cutting output by 1m barrels a day over the next decade, as well as growing renewable energy output by a factor of 20, and looking at developing low carbon technologies for carbon capture and storage to lower the company’s carbon footprint.
Best performance since 2019
In terms of profit, BP reported underlying replacement cost profit of $2.6bn, its best performance since 2019, compared to $100m in Q4, driven by higher energy prices, as well as better refining margins. This was largely expected given the company’s update a few weeks ago, with a confirmation that it was also looking to restart share buybacks in Q2, the first one being $500m, with a view to doing further buybacks in subsequent quarters. The dividend was kept at $5.25.
Having seen $1.7bn of positive cashflow in Q1, BP said that cashflow in Q2 would be impacted by its annual $1.2bn Gulf of Mexico oil spill payment, and that as a result was likely to see a deficit for that quarter. Cashflow is then expected to return to surplus in the second half, based on oil prices of $45 a barrel.
BP said that a strong trading performance in this quarter has been instrumental in helping to achieve these various targets, with its gas and low carbon energy business generating the bulk of returns.
Jury still out on climate targets
The resilience of energy prices has no doubt helped in terms of today’s numbers, and with gasoline and distillate demand in Q2 set to pick up further as economies reopen, investors, while grateful for a return of capital, will also be looking for further indications of what other measures the company is looking to take to steer itself towards a greener future.
Buybacks are all well and good in the short term, however what BP does with its surplus cash in terms of its 'Performing While Transforming' strategy will also be important, as it looks to meet its climate targets. And on that, the jury is still out.
Disclaimer: CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.
