BP (BP.L) said it will hand shareholders $500m (£360m) through buyback and predicted a recovery in oil demand in 2021 as economies reopen and as it swung to a profit.
Shares in the company were up 3% on Tuesday morning. It was also among the FTSE 100's (^FTSE) top rises.
One of the world’s largest oil companies rebounded from a first quarter reporter loss last year to post a profit. Its reported profit for Q1 2021 was $4.7bn, compared to a loss of $4.4bn in Q1 2020. Net income was $2.6bn, above market consensus expectation of $1.5bn.
In the second quarter it said it "intends to offset the expected full-year dilution from the vesting of awards under employee share schemes through buybacks, at a cost of around $500m."
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"Companies are often criticised for how and when they decide to buy back their shares. Arguably it’s only the best option when there are no investment opportunities elsewhere and those shares look cheap. And BP’s do look cheap," said Dan Lane, senior analyst at Freetrade. At the time of writing, they were trading at £300.
It said it generated around $11bn of cash inflow in the first quarter, enabling it to reach its $35bn net debt target "significantly ahead of plan." The company also reduced its net debt reduced by $5.6bn to reach $33.3bn at the end of the quarter, well below its $35bn target.
"For now now BP knows it can only really create value through buybacks. Net debt may be deemed stable but that’s still a $30bn+ mountain that needs attention eventually," added Lane.
Meanwhile BP chief Bernard Looney said that "with the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early."
"We are commencing share buybacks in the second quarter which, alongside our resilient dividend, support the growth in distributions to shareholders."
Looking ahead, BP expects oil demand to recover in 2021 due to strong growth in US and China, the rollout of vaccines and the ease of lockdown restrictions.
It also expects global gas demand to recover to above 2019 levels, and LNG demand to increase as a result of higher Asian imports.
Steve Clayton, manager of the HL Select UK Income Shares fund, which has a position in BP said: “The market could not have asked for more from BP with these results."
"The energy sector had a tough pandemic; oil prices crashed as travel ground to a halt around the globe. BP is now riding the recovery and reshaping the business for a low-carbon future."
He pointed out that "the crucial question, as yet unanswered is what returns will BP be able to achieve from its growing portfolio of green energy investments."
Back in February 2020, when Looney took over, BP had pledged to become net emissions neutral by 2050, marking one of the most ambitious climate targets in the energy industry.
"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," said Michael Hewson, chief market analyst at CMC Markets UK.
"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," he added.
In June last year the company said it was cutting 10,000 jobs due to the widespread economic fallout from the coronavirus pandemic and the resulting slump in oil prices.
The job cuts, equivalent to 15% of the company’s global workforce, mainly affected senior office-based roles.
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