Business

British oil company BP announces shareholder returns raise, boosting shares 5%.

BP's stock saw a 5% boost on Tuesday after the company decided to expedite its share repurchases and raise its dividend despite declining yearly earnings.

Before releasing its first-quarter results, the energy company accelerated its share repurchases by declaring its plan to conduct a $1.75 billion share buyback. The corporation committed to declaring a $3.5 billion share repurchase program during the year's first half.

BP has declared a dividend of 7.27 cents per ordinary share for the last quarter of 2023, representing a 10% growth compared to the same period in the prior year.

In 2023, the oil company reported an underlying replacement cost profit of $13.8 billion, used as a substitute for net profit. This amount represents a significant decline from the previous year's record-breaking profit of $27.7 billion. The LSEG-compiled consensus projected a net profit of $13.9 billion for the whole of 2023, as expected by analysts.

BP reported a fourth-quarter net profit of around $3 billion, above analyst projections of $2.6 billion.

Analysts at RBC Capital Markets expressed their pleasant surprise at BP's decision to continue share buybacks beyond the first quarter of 2024, as the oil company's London-listed stock surged towards the top of the pan-European Stoxx 600 index on Tuesday morning.

The market was likely not anticipating BP's proposal to carry out share buybacks of at least $14 billion until 2025, contingent upon retaining a solid investment grade rating.

"BP's release of 2025 EBITDA targets, which surpass consensus expectations, demonstrates their confidence in future performance," said RBC Capital Markets in a research note about the company's commitment to payouts. EBITDA is a financial metric representing a company's profitability before accounting for interest, taxes, depreciation, and amortization.

"Currently, oil investors are specifically reacting to the shareholder returns," said Noah Brenner, the executive editor at Energy Intelligence, during an interview with CNBC's "Squawk Box Europe" on Tuesday.

"What BP has done is not only beat on the expected buyback over the next couple of quarters but also given clarity to what that buyback — and this is a minimum amount of what that buyback will be — will be over the next couple of years. "And that has been a significant source of investor disagreement," he continued.

'Genuine impetus'

BP said its fourth-quarter performance was driven by robust gas trading and notably reduced refining margins throughout the sector. The net debt for the period was $20.9 billion at the end of 2023, a decrease from $21.4 billion at the end of 2022.

"In retrospect, 2023 was a year characterized by robust operational performance and significant progress in delivering results throughout the entire organization," said BP CEO Murray Auchincloss.

"We have full confidence in our strategy, which aims to transform our company into a more streamlined, targeted, and valuable entity. We are dedicated to creating sustainable growth and maximising value for our shareholders in the long run."

Shell, a British competitor, said on Thursday that it had achieved higher-than-expected earnings for the whole year. In addition, they declared a 4% rise in their dividend and introduced a new share repurchase program worth $3.5 billion.

Exxon Mobil and Chevron surpassed quarterly profit projections in the United States. However, their results still significantly declined from the previous year due to lower fossil fuel prices.

Tactical plan

BP's most recent financial outcomes coincide with the business being scrutinized by an activist investor about its strategic approach.

In an October letter sent to BP Chair Helge Lund and then-interim CEO Murray Auchincloss, Bluebell Capital Partners, they advocated for an increase in the company's oil and gas investments while advocating for a decrease in expenditure on sustainable energy. The Financial Times she first disclosed the letter last week.

Giuseppe Bivona from Bluebell Capital has stated his dissatisfaction with BP's share price performance, which he considers far behind similar companies in the United States and Europe. During an interview with CNBC's "Squawk Box Europe" on January 30th, Bivona advised BP to allocate its money strategically.

Upon the letter's release, a BP representative expressed the company's appreciation for meaningful interaction with its shareholders.

BP has also faced the challenge of a highly publicized leadership transition. Murray Auchincloss was selected as the permanent CEO of the corporation last month, almost four months after his predecessor, Bernard Looney, resigned after less than four years in the position.

Under Looney's guidance, BP committed to reducing its total emissions by 35% to 40% by the end of the decade.

Last year, the company diluted its climate objectives. It once aimed to achieve net-zero emissions "by 2050 or earlier," making it one of the first major energy companies to do so. About a year ago, BP said it would aim to reduce 20% to 30% instead, acknowledging the need to continue investments in oil and gas to fulfill market demand.