(Alliance News) - BP PLC on Tuesday raised its second-quarter dividend and joined peer Royal Dutch Shell PLC in setting plans for a big share buyback.
In addition, the oil major dangled the prospect of more such returns to shareholders as oil prices continue to recover from pandemic lows.
BP shares were up 2.5% to 297.00 pence early Tuesday in London, the top FTSE 100 gainer.
For the second quarter of 2021, BP swung to a replacement cost profit attributable to shareholders of USD2.38 billion from a USD17.66 billion loss a year earlier.
BP's preferred measure of profit is replacement cost. This is defined by the company as the replacement cost of inventories sold in the period.
Underlying replacement cost profit for the second quarter was USD2.80 billion, swung from a USD6.68 billion loss a year ago. It also marked an improvement from the first quarter of 2021, when BP recorded an underlying RC profit of USD2.63 billion.
At the pretax level, BP posted a USD14.57 billion hit from adjusting items in the second quarter of 2020, compared to a USD8 million boost this time around. Adjusting items last year included hefty impairment charges.
BP swung to second quarter pretax profit of USD5.13 billion from a USD21.60 billion loss a year before.
Total second quarter revenue rose 81% year-on-year to USD37.60 billion from USD20.78 billion.
For the whole of the first half, BP swung to an RC profit of USD5.71 billion from a USD18.29 billion loss and pretax profit amounted to USD11.68 billion, swinging from a USD26.13 billion loss. Underlying RC profit for the first half was USD5.43 billion, swung from a USD5.89 billion loss a year before. Revenue climbed 43% annually to USD74.09 billion from USD51.64 billion.
BP lifted its dividend and unveiled a USD1.4 billion share buyback, and of both to shareholders.
Profit was driven by higher oil prices and margins, though offset by a lower result in gas marketing and trading.
Operating cash flow was USD5.41 billion in the period, up from USD3.74 billion a year ago. BP said it generated surplus cash flow of USD700 million in the second quarter and USD2.4 billion in the first half after having reached its net debt target of USD35 billion.
The company's net debt stood at USD32.71 billion at June 30, down from USD40.92 billion a year ago.
"Based on the underlying performance of our business, an improving outlook for the environment and confidence in our balance sheet, we are increasing our resilient dividend by 4% per ordinary share and in addition, we are commencing a buyback of USD1.4 billion from first half surplus cash flow," said Chief Executive Bernard Looney.
BP declared a dividend of 5.46 cents for the quarter, up 4.0% from 5.25 cents a year ago. For the whole of the first half, however, BP's payout was 32% lower at 10.71 cents per share from 15.75 cents.
This was because BP paid a 10.5 cents payout in the first quarter of 2020. In 2020, its second quarter payout was halved quarter-on-quarter to 5.25 cents, the first time BP had cut its dividend since the Deepwater Horizon disaster in 2010.
Since last year, however, the outlook for oil prices has become more promising. Global vaccination campaigns have boosted demand for the commodity, ensuring barrels of Brent trade a lot higher than pandemic lows.
Brent oil was trading at USD72.65 a barrel early Tuesday morning in London, down from USD73.58 at the London equity market close on Monday. After recovering from pandemic-induced lows, Brent has consistently traded above USD60 per barrel since early February 2021. Brent prices have risen 50% since 2021 began.
If oil prices are at around USD60 per barrel, BP expects to deliver buybacks of around USD1.0 billion per quarter. In addition, it plans to kick off a share buyback of USD1.4 billion using surplus cash flow from the first half. This share repurchase plan will be executed before it announces its third quarter results.
Oil peer Shell last week said it is targeting USD2 billion in buybacks, which it aims to complete by the end of 2021.
BP's Looney added: "On average at around USD60 per barrel, we expect to be able to deliver buybacks of around USD1.0 billion per quarter and to have capacity for an annual increase in the dividend per ordinary share of around 4%, through 2025."
BP paid 31.50 cents in dividends in 2020, down 23% from 41.00 cents in 2019.
Looking ahead, BP expects the oil industry to "continue its rebalancing process".
"Oil demand is expected to recover in 2021 on the back of a bright macroeconomic outlook, increasing vaccination roll-out and gradual lifting of Covid-19 restrictions around the world. The expectation is that demand reaches pre-Covid levels sometime in the second half of 2022," the company added.
For the third quarter, it expects Upstream output to improve compared to the second. This is due to the end of seasonal maintenance work and project ramp-ups.
BP added: "If Covid restrictions continue to ease, we expect higher product demand across our customer business in the third quarter. Realized refining margins are expected to improve slightly, supported by stronger demand and wider North American heavy crude oil differentials. In Castrol, industry base oil and additive supply shortages are expected to continue."
Full-year Upstream output will be lower annually, due to BP's divestment programme, though on an underlying basis, production will grow compared to 2020.
By Eric Cunha; ericcunha@alliancenews.com
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