Higher Oil Prices Yield Higher Business Profits
BP reported a surge in business profit compared to a year-ago period after the company witnessed a recovery in oil demand amid strong growth in the US and China. Oil prices have surged in recent months following accelerated COVID-19 vaccination programs.
BP reported its net income surged to $2.6 billion, up from analysts’ estimates of $1.64 billion and more than the $2.4 billion profit the company reported in Q1 2019. Operating cash flow soared to its highest level since Q4 2019 to $6.1 billion. Meanwhile, underlying profit in its gas division surged to $1.7 billion from $2 million in the earlier quarter.
The British oil and gas company said it expects global oil inventories to plummet to record low levels by the end of 2021 after surging amid the pandemic. It also plans to offload $25 billion of assets by 2025 as a part of its plan to lower carbon emissions.
"We estimate a further $1.5-2 billion in buybacks is possible this year," Bernstein’s analysts said in a note on the Outperform-rated BP stock.
After a year of struggling to reduce costs, the number of employees, and its dividend, BP said it plans to buy back $500 million of shares in the next quarter. A continuation of its buyback program is enabled after the oil company saw its net debt drop below its $35 billion target sooner than expected.
“With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early,” Bernard Looney, chief executive officer of the company, said in a statement.
“And at the same time, we’ve delivered disciplined strategic progress right across bp – including building a high-quality offshore wind business, making great strides in our electrification agenda and setting ourselves up for further growth in the Gulf of Mexico. ”
Net debt fell by $5.6 billion to $33.3 billion in the period from December to March, thanks to $4.8 billion in disposals and stronger oil prices. The accelerated rollout of COVID-19 vaccines and a strong economic recovery in the US and China has sent oil prices roughly 25% higher year-to-date (YTD).
The oil and gas company said it will provide more information about its Q3 buyback program later this year. Looney noted that dividend levels could rebound to pre-coronavirus figures within a year.
Shares of the oil business giant dropped 3% in the morning, but remain up 17% since the start of 2021.
Still, the BP stock remains the worst-performer among oil giants, with shares of the British company still performing at about a third down compared to pre-pandemic levels as business investors continue to doubt its energy transition strategy.
Oil and gas business giant BP said its profit more than tripled to $2.6 billion in Q1 thanks to a surge in oil prices and increased revenue from natural gas trading. The company said it plans to buy back about $500 million of its shares in Q2.