Earnings Reports

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British oil major BP PLC reported better than expected second quarter earnings Tuesday. $BP approved a dividend hike of 4% & plans to buy back $1.4 billion worth of shares. Higher profit margins at convenience stores in BP’s petrol stations boosted results.

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BP PLC ADR (NYSE: $BP) Reported Earnings Before Open Tuesday

$0.83 Beat $0.61 EPS Forecast and $37.59Bil Beat $24.542 Billion Forecast in Revenue

Earnings

BP plc reported second-quarter 2021 adjusted earnings of 83 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items, beating consensus estimates of earnings of 61 cents per share and reversing from the year-ago loss of $1.98. The profit was powered by higher oil prices and recovering demand.

Its underlying replacement cost profit, the company’s definition of net earnings, reached $2.8 billion in the second quarter, beating the $2.15 billion expected by analysts. That was up from $2.63 billion in the first quarter and marked a rebound from a loss of $6.68 billion a year earlier.

Total revenues of $37,598 million increased from $20,776 million in the year-ago quarter and beat the consensus estimates of $34,542 million. The strong quarterly results were driven by higher realizations of commodity prices.

The strong results, underpinned by higher sales at petrol (gas) stations, went some way towards easing investors’ concerns over BP’s plan to shift away from oil and gas to renewable and low-carbon energy to combat climate change.

BP PLC NYSE: $BP

Market Reaction  Pre-market 25.20 +1.12 (4.65%)

Highlights

BP, plans to reduce its oil output by 40% or 1 million barrels per day by 2030, generated surplus cash of $2.4 billion in the first half of the year.

Chief Executive Bernard Looney said stronger performance and an improving outlook would allow the company to press ahead with a shift to cleaner energy.

“The strengthening of the balance sheet and the excess cash flow allow us to prosecute our agenda around the energy transition,” Looney told Reuters.

  • BP expects global oil demand to recover to pre-pandemic levels in the second half of 2022.
  • The results were also buoyed by stronger demand for fuel, including aviation fuel
  • Higher profit margins at convenience stores in BP’s petrol stations boosted returns also. 
  • BP’s net debt fell dropped to $32.7 billion from $40.1 billion.

Dividends and Buybacks

BP boosted its dividend and share buybacks. The 4% dividend increase coupled with a $1.4 billion share repurchase over the next three months drove BP shares 5.6% higher when announced exceeding peers Royal Dutch Shell and TotalEnergies, which were up by over 2%. BP increased its dividend to 5.46 cents after it was halved to 5.25 cents in July 2020 for the first time in a decade. The company is repurchasing shares after in April announcing a $500 million buyback plan to offset dilution from an employee share distribution programme.

Dividends are sought after in energy majors as we saw with both US Oil giants Chevron and ExxonMobil in their reports.

The company said at an oil price of $60 a barrel, it expects to be able to buy $1 billion in shares and boost its dividend by 4% annually through 2025.

Tuesday’s announcement brings BP’s total shareholder payouts in 2021 to around 4.4 billion pounds ($6.13 billion), representing more than 7% of its market capitalisation.

Outlook

BP said it has increased its price forecast for benchmark Brent crude oil to 2030 to reflect expected supply constraints, while also lowering its longer-term price forecast because it expects an acceleration in the transition to renewable energy.

BP increased the pre-tax value of its assets by $3 billion, following writedowns of more than $17 billion last year. Brent oil prices rose in the second quarter to an average of $69 a barrel from $61 in the previous quarter and from $29.56 a year earlier. ($1 = 0.7177 pounds)

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