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BP Plc said it has already hit its target of $ 35 billion in net debt, reaching the threshold at which it said it could restart share buybacks about a year earlier than expected.
This news reflects an accelerating pace of asset sales and improved business performance, as BP’s business division capitalizes on dramatic developments in the energy markets. This marks a potential turning point after a tumultuous year for the industry, in which fuel sales and refining margins were hammered by the impact of the coronavirus pandemic.
So far this year, a “very strong” trade performance driven by trade, prices and “resilient operations” has driven borrowing down, the London-based oil giantsaid Tuesday. Having achieved its debt target, “BP has committed to return at least 60% of excess cash to shareholders through share buybacks.”
The move will be a boon to investors, many of whom had seen their counterpart Royal Dutch Shell Plc as being ahead of the game in returning cash to shareholders, having slightly increased its dividend just two quarters after its cut. BPcut its payments last August, a policy reversal after boosting it a few quarters earlier.
BP shares rose 3.4% to 299.75 pence at 9.46am in London, extending their gain this year to 18%.
“Given the share price position, we expect that over 60% of excess free cash flow will be used for buybacks,” said Oswald Clint, analyst at Sanford C. Bernstein Ltd. The energy company also made strong profits from trading in liquefied natural gas in the first quarter, he said.
While the market has welcomed BP’s announcement, the company’s value is still down a third from pre-pandemic levels. This reflects struggles on multiple fronts, from the lingering effects of the viral crisis to corporate overhaul as part of the energy transition. BP has worked over the past year to convince investors that it can generate high returns while reducing emissions and increasing investment in clean energy.
He also sells a host of assets – including a stake in a largeOmani gas project and interest in the data businessPalantir Technologies Inc. – and plans to unload $ 25 billion worth by 2025. BP received about $ 4.7 billion in divestitures in the quarter through March, and now expects that this product in 2021 is at the top of its $ 4 billion to $ 6 billion range. , he said on Tuesday.
See also: BP is expected to present final offers for North Sea energy assets
BP is one of a number of oil majors and independent commodity trading houses to benefit from the sharp price swings during the pandemic. The company doesn’t break down its business unit’s revenue, but CEO Bernard Looney said the division would be key to increasing returns on renewable energy investments, which are typically 5% to 6%.
BP’s net debt at the end of 2020 was $ 38.9 billion. He said at the time that figure would likely increase in the first half of 2021. In February, BP estimated it would meet its debt target of $ 35 billion between the fourth quarter of 2021 and the first quarter of 2022.
There will be a new update on debt and buyback plans in BP’s first quarter results on April 27.
(Updates with analyst commentary in the sixth paragraph.)
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