BP to Hit Net Debt Target Early and Restore Buyback Program

By Mariliana Fotopoulou Tuesday, April 6, 2021

London Olympics BP venue.

BP, a multinational oil and gas company based in London, said today that it is on track to hit a $35 billion net debt target in Q1 2021, which is sooner than the company anticipated earlier.

Paving the Way to Resume Buyback Plan

BP is expected to hit its target this quarter as its net debt stood at $38.9 billion at the end of Q4 2020. The energy business said it has collected about $4.7 billion in proceeds recently. More than half of this amount ($2.4 billion) is generated from the completion of the sale of a 20% interest in Oman’s Block 61.

Moreover, the company generated $1 billion from the sale of BP’s global petrochemicals business to INEOS, $700 million from the sale of a 49% interest in a controlled affiliate holding certain refined product and crude logistics assets onshore US, as well as $400 million from selling its stake in the US tech company Palantir.

"We are pleased to announce that we now expect to have reached our $35 billion net debt target during the first quarter 2021. This is a result of earlier than anticipated delivery of disposal proceeds combined with very strong business performance during the first quarter. We look forward to updating the market at our first quarter results, including further information on share buybacks,” Bernard Looney, CEO of the oil company, said in a statement.

As a result, the energy business is now projecting to generate full-year proceeds at the top end of the previously announced $4 billion to $6 billion range. Since the second half of 2020, BP has already collected about $10 billion in proceeds as it remains firmly on track to hit its target of $25 billion of disposal proceeds by the second half of 2025.

The oil company previously said it expected to see its net debt increase in the first half of this year due to several scheduled payments, including a payment to Equinor and a $1.2 billion Gulf of Mexico oil spill payment scheduled for Q2 of this year.

“Reflecting the delivery of disposal proceeds and the very strong business performance in the first quarter 2021, driven by trading, the price environment and resilient operations, BP now expects to have reached its net debt target of $35 billion during the first quarter 2021,” BP said in a statement.

Given a strong performance lately, the oil and gas business will aim to return at least 60% of surplus cash flow to shareholders in the form of share buybacks. The company’s recent performance has also been underpinned by recovering oil prices.

“We estimate that at $60/bbl oil prices, the company will be buying back around $2 billion - $2.5 billion in shares annually,” Berenberg analyst Henry Tarr wrote in a note.

BP stock price gained over 3.5% in London’s trading session today.

Summary

Following a strong performance recently, the British oil and gas business BP is expected to hit its $35 billion net debt target ahead of schedule, paving the way for its buyback plan to resume.

About the Author


Headshot of Mariliana Fotopoulou

Mariliana has an MSC in Consumer Analytics and Business Strategy. She has a special interest in fast-moving industries and Big Data.

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