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BP Ends Big Oil Earnings with Maintained Share Buybacks

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Payouts from the world’s biggest international oil companies hit a record US$114 billion last year

Bloomberg News

BP PLC maintained the pace of its share buybacks even as first-quarter profit and cash flow fell by more than expected and net debt increased.

The result marks the end of a mixed set of Big Oil earnings which saw Shell PLC, TotalEnergies SE and Chevron Corp. do better than expected, while Exxon Mobil Corp.’s profit fell short. All of the companies kept their focus on returning cash to shareholders, and BP pledged to repurchase US$3.5 billion of shares in the first half of the year, matching the pace of prior quarters.

Payouts from the world’s biggest international oil companies hit a record US$114 billion last year. Exxon is now planning a buyback that could exceed some American tech giants, while Saudi Arabia’s Aramco kept its US$31 billion dividend payout to the Saudi government and other investors. For BP, the shareholder payouts are key to try and close the gap in its valuation with its American competition.

“We’re highly undervalued if we compare ourselves to some of our American peers,” chief executive Murray Auchincloss said in an interview Tuesday. “As long as that kind of gap exists, we should continue to buy back shares.”

Auchincloss stressed the company isn’t looking at moving BP’s listing to the U.S., a measure that could be on the table for some of its European supermajor peers.

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Despite stronger earnings from oil and gas trading, BP reported weakness in some key financial underpinnings of those shareholder returns, even with Brent crude above US$80 a barrel.

Shares of the company were little changed at 510.4 pence as of 11:35 a.m. in London.

Operating cash flow was just more than US$5 billion, the lowest since the fourth-quarter of 2020 and well below the average analyst estimate of US$6.72 billion. Net debt rose by more than US$3 billion to US$24.02 billion at the end of the first quarter. BP said both of these figures were affected by a US$2.39 billion build in working capital, most of which should be reversed by the end of the third quarter.

The company made a new pledge to further reduce costs in the medium term, after announcing changes to its organizational structure. BP is simplifying and reducing complexity across the company and plans to deliver at least US$2 billion of cash cost savings by the end of 2026, Auchincloss said in a statement.

Adjusted net income for the first three months of the year was US$2.72 billion, compared with US$4.96 billion a year earlier and US$2.99 billion in the prior quarter. That missed the average estimate of US$2.91 billion.

After adjusting for the change in working capital, BP’s cash flow was in line with expectations and the profit shortfall was mainly down to a higher-than-expected tax rate, RBC analyst Biraj Borkhataria said in a note.

Profits from BP’s oil and gas trading businesses were “strong,” the company’s statement said, an improvement from the fourth quarter where the unit was described as having “weak” performance. Like the rest of its Big Oil peers, BP doesn’t break down exactly how much its trading divisions make, but has said that the whole organization delivered a four per cent uplift to return on average capital employed over the past four years.

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