RE: Bp Buybacks30 Apr 2021 20:16
'Did anyone pick up on Looneys 5 (hierarchy of) priorities for cash'. They are:
1 Resilient dividend, 2 Strong investment grade credit rating, 3 Low carbon* and convenience and mobility spend $5-7bn per year, 4 Resilient hydrocarbons spend $9bn per year, 5 Buybacks to offset employee share plan dilution & return at least 60% of surplus cash flow.
BP's 2nd priority is to maintain a 'strong investment grade credit rating' and I infer we are on track eg Moodys A2 rating given 23 March - all ratings where changed from negative to stable. '...the rating agency expects that BP's operating performance will improve notably in 2021-22. In addition to improving oil and gas prices, measures implemented by the company to protect earnings and cash flow generation and to strengthen its financial profile will support some recovery of BP's credit profile. BP has (i) materially reduced its organic capital expenditure to $12.0 billion in 2020 from $15.2 billion in 2019 and guides for combined inorganic and organic capital expenditure of around $13 billion in 2021; (ii) lowered its cash cost by 12% in 2020 and plans to achieve a pre-tax cost savings run rate of $2.5 billion in 2021 and $3-4 billion in 2023, relative to 2019, supported by its efficiency program 'Reinvent' which foresees 10,000 headcount reductions over 2020 -- 2022; (iii) introduced a $35 billion net debt target which compares to $38.9 billion at the end of 2020; and (iv) materially reduced its shareholder remuneration.
BP reduced its quarterly dividend by 50% to $0.0525 per share, which lowers the annual dividend payment to around $4.5 billion compared with around $9 billion previously. BP stated that it plans to keep the dividend at this lower fixed level going forward. In addition, BP achieved $6.6 billion of divestment proceeds during 2020 and expects further $4-6 billion of disposal proceeds in 2021 as part of its $25 billion H2 2020 -- 2025 disposal program.
These measures have lowered BP's cost base and should increase BP's cash flow generation in 2021-22. The company's actions alongside the improving oil and gas price environment should enable BP to regain some of its previous financial strength so that it should be solidly positioned in the A2 rating over the next 12-18 months. Moody's expect that BP's Moody's adjusted retained cash flow (RCF) to net debt metric will rise from an estimated 9% in 2020 to around 22% in 2021 under a $50/bbl Brent oil price scenario. The metric is projected to further improve to around 26% in 2022 under Moody's $55/bbl Brent oil price 2022 base case scenario. While the projected 2022 RCF/net debt metric could have been sufficient in the past to justify an A1 rating, Moody's believes that the longer-term risks of the energy transition require that even the largest and most diversified integrated oil and gas companies need to have stronger financial profiles to mitigate these risks to retain their overall credit quality.'
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