BP share price benefits from higher dividend and buyback

You’d think that with oil prices up nearly three years ago, BP’s stock price would have risen with it, and although it’s up in the year, it’s still below the level than it was in its first quarter update, even with today’s positive reaction to the company’s second quarter results.

Today’s second quarter update is certainly good news for shareholders, with the company reporting underlying replacement cost profit of $2.8 billion, compared to a loss of $6.7 billion. dollars a year ago. It also helped boost first-half replacement cost profit to $5.4 billion, building on underlying replacement cost profit of $2.6 billion in the first quarter. and posting its best performance since 2019.

The company also increased its dividend to C5.46 per share, and announced a $1.4 billion share buyback from its first-half excess cash flow. BP went on to say that with oil prices at $60, it was possible to make buybacks of $1 billion per quarter and have the ability to increase the dividend by 4%.

Cash flow was lower than in the first quarter, although this was widely expected due to the $1.2 billion payment for the Gulf of Mexico oil spill that was reported in the first quarter, down from $700 million to $5.4 billion.

Net debt also fell from $33.3 billion to $32.7 billion.

With Royal Dutch Shell raising the bar last week with a dividend increase and the resumption of its buyback program, BP was still likely to face a high bar for judgment, with the second quarter and first quarter update semester today, and on returns, it appears to have delivered.

There is no doubt that the rise in the price of oil has helped BP this quarter, along with the rest of its peers, however, if the company is to meet CEO Bernard Looney’s plans for a 40% cut in production of oil and gas by 2030, then it will have to invest a lot more in renewables to be able to do that, and while shareholders will no doubt be happy with today’s additional windfall, you have to wonder if this is the best long-term use of the company’s excess cash.

The transition to green energy will continue to be costly, and while BP may report tenders for wind leases, solar energy investments, as well as infrastructure such as electric vehicle charging stations , the real challenges are in building the capacity of the network, and there seems to be little or no investment in that, from any of the oil majors, or anyone else for that matter.

You can have as many charging stations as you want, but if the network can’t cope, the economy is going to end up in a world of pain.

There has been progress with the company completing a number of projects, including a renewable pipeline. Lightsource continued its expansion into Portugal, Spain, Greece and Australia, while indicating its intention to bid for offshore wind leases in Scotland and Norway.

The jury remains convinced that plans to cut oil and gas production by 40% are achievable without hammering margins, given that the bulk of BP’s first-half profits came from its oil production and operations, an activity worth 3.8 billion dollars. Low-carbon gas and energy was next with $3.5 billion.

Having invested in wind power leases in the Irish Sea, the direction of travel is clear, while Lightsource is also delivering on its plans.

For now, the share price performance seems to suggest that the jury is still out on whether BP will be able to deliver on its ambitious plans, although an oil price up to $70 a barrel and a recovery demand for gasoline and distillates will no doubt help for the rest of the year.