BP Launches Share Buyback As Q3 Profit Beats Estimates

BP (NYSE:BP) is starting a share buyback program as it doubled its third-quarter profit, in a sign that the UK oil supermajor is now more optimistic of its business and cost structure.

BP reported on Tuesday an underlying replacement cost profit—its preferred measure for net income—of US$1.865 billion, up from US$933 million for the same period in 2016, as oil and gas production increased by 14 percent on the year, and downstream underlying quarterly earnings hit their highest in five years. Analysts had expected BP to report an underlying Q3 profit of US$1.58 billion.

BP’s total oil and gas production in Q3 averaged 3.6 million barrels of oil equivalent per day, up by 14 percent from Q3 2016.

In the downstream, underlying replacement cost profit before interest and tax jumped to US$2.338 billion from US$1.413 billion in Q2, and from US$1.431 billion in Q3 2016.

In the upstream, underlying profit before interest and tax surged to US$1.562 billion from US$710 million in Q2, and from a loss of US$224 million in Q3 2016.

Between January and September, BP’s underlying operating cash flow exceeded organic capital expenditure plus full dividend, which was equal to organic cash balance including full dividend at Brent oil price of $49 a barrel.

Encouraged by these signs, BP restarted its share buyback program to offset the dilution coming from its scrip dividends—the plan under which investors can choose to be paid in shares instead of in cash, which BP and other oil majors resorted to with the oil price crash.

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“We have made strong progress this year in adjusting to the lower oil price environment and have now brought our finances, including the full dividend, back into organic balance at an oil price just below $50 a barrel. Given the momentum we see across our businesses and our confidence in the outlook for the group’s finances, we will be recommencing a share buyback programme this quarter. We intend to offset the ongoing dilution from the scrip dividend over time,” chief financial officer Brian Gilvary said.

The buyback plan sent BP’s shares rallying in London, and 2.85 percent higher in pre-market trade in New York at 8:17 a.m. EDT.

By Tsvetana Paraskova for Oilprice.com

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