The BP logo is reflected on a car window at a gas station in London. The oil major cut its net debt to US$22-billion in its most recent quarter.Luke MacGregor/Reuters
BP BP-N suspended its share buyback program and took about US$4-billion of charges in its renewables and biogas assets, sending its shares down as much as 5.7 per cent on Tuesday, as the oil major geared up for a new CEO to take the helm.
BP, whose new CEO Meg O’Neill will start in April, said it would shift money from buybacks to shrinking its debt and refocus investment in oil and gas projects where it expects better returns.
Berenberg analysts were not surprised by the removal of buybacks, but said the market took it as a negative, alongside BP dropping a pledge to pay out 30 per cent to 40 per cent of its operating cash flow in dividends and buybacks.
RBC and Barclays analysts said scrapping buybacks was the right move for the company, given its debt.
Shares sank about 4.2 per cent in midday trading, against a 0.5-per-cent dip in a broader index of European energy companies. Shares had earlier dropped as much as 5.7 per cent.
BP pauses buybacks as it cuts debt burden
The oil major trimmed its net debt to US$22-billion from US$26-billion in the previous quarter, and reiterated a targeted amount of US$14-billion to US$18-billion by 2027.
Analysts had raised the prospect that European oil majors’ buyback programs may shrink due to lower oil and gas prices. Norway’s Equinor EQNR-N slashed its buyback program by 70 per cent last week, though Shell SHEL-N and Exxon XOM-N have held firm on their buybacks.
BP had repurchased shares worth US$750-million over the last three months, and has bought back shares every three months since the second quarter of 2021, according to LSEG data.
The company’s fourth-quarter underlying replacement cost profit, or adjusted net income, was US$1.54-billion, up 32 per cent from a year earlier.
Focus returns to oil and gas
A year ago, under then-CEO Murray Auchincloss, BP announced a strategy reset back to hydrocarbons, saying the move would improve profitability after an ill-fated foray into renewables by predecessor Bernard Looney.
In an update on the Brazilian Bumerangue discovery, its biggest hydrocarbon find in 25 years, BP estimated it holds 8 billion barrels of liquids in place, split between oil and condensate.
The company said it plans to drill appraisal wells around the end of the year. Citi analysts estimate around 25 per cent to 40 per cent of the resources can be tapped.
Write down low-carbon projects
BP had previously flagged up to US$5-billion in impairments and, on Tuesday, listed its solar unit Lightsource bp, U.S. biogas unit Archaea and offshore wind businesses as the main reasons. BP bought Archaea in 2022 for US$4.1-billion.
“I really don’t like taking impairments. I’m very aware that this is our shareholders’ capital, but these are the accounting consequences of the discipline that we are putting into our company,” Finance Chief Kate Thomson told Reuters on a call. “We’ve tightened very hard the number of plants we’re moving forward.”
Thomson and interim CEO Carol Howle declined to give further details but said the impairments allow BP to invest in assets that promise the best returns.