BP Plc slowed the pace of share buybacks as lower energy prices trimmed its cash flow.
(Bloomberg) — BP Plc slowed the pace of share buybacks as lower energy prices trimmed its cash flow.
While the London-based giant’s profit beat estimates thanks to a strong oil and gas trading performance, the surplus cash flow it uses to boost investor returns shrank by about 40%. BP said it will repurchase $1.75 billion of shares before announcing second-quarter results, down by $1 billion from the prior period.
Even as Big Oil’s earnings decline from the record levels seen in 2022, they remain strong by historical standards and companies are still generating a lot of extra cash. Nevertheless, BP’s shares fell as much as 4.4% as the buyback came in smaller than expected.
The first-quarter results and guidance for the rest of the year “suggests that free-cash-flow momentum is likely to be weaker from here, although this could improve later,” RBC analyst Biraj Borkhataria said in a note.
First-quarter adjusted net income was $4.96 billion, down from $6.25 billion a year earlier but comfortably beating the average analyst estimate of $4.28 billion. BP said the figures reflected an “exceptional” performance in gas marketing and “very strong” results from oil trading. That offset the impact of lower energy prices and refining margins.
Shares of the company were 3.4% lower at 516.3 pence as of 8:10 a.m. in London.
BP’s surplus cash generation of $2.28 billion was below expectations, but that was due to a working capital build of $1.4 billion, RBC’s Borkhataria said. On an underlying basis, cash flow from operations beat estimates, he said.
BP is executing a strategy laid out earlier this year to pump more oil and gas than previously planned in the near term, while also increasing investment in low-carbon energy. In April, the company brought a major new oil platform online in the Gulf of Mexico and has said it will consider deals to boost fossil fuel production further.
That’s angering activists and some investors, but it appeals to other shareholders who want to see higher cash returns from an industry that had struggled for several years. BP shares have risen about 30% over the past year.
“As we had expected, softening prices translated into a lower second-quarter buyback tranche at $1.75 billion ($2.75 billion in the first quarter). Declining net debt and maintained capex guidance are further positives, though we flag that earnings strength may not be repeatable given the significant trading contribution in the first. — Will Hares, BI global energy analyst.
The company said it plans to keep growing returns to investors by buying back about $4 billion of shares and increasing the dividend by 4% annually, assuming capital expenditure is held at the lower end of the $14 billion to $18 billion range and Brent crude trades near $60 a barrel.
(Updates with share price move in third paragraph.)
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