“BP plc (LON:BP) isn’t quite throwing caution to the wind, but the company’s steady as she goes approach has been infused with optimism as higher oil prices make immediate prospects look brighter.
Q2 2021 hedge fund letters, conferences and more
BP Is Splashing Surplus Cash
With profits for the quarter coming in at $3.1 billion, the company is splashing surplus cash piled up through an annual increase in the dividend by 4% through to 2025 and $1.4 billion in share buy backs.
It expects oil prices to linger higher for longer as supply constraints put it in a more bullish mood and reverse previous write downs of assets to the tune of $3 billion. The group reckons it can offer share buy backs of $1 billion per quarter with Brent crude around $60 a barrel.
That would still leave a 40% chunk of surplus cash to bolster the balance sheet, and although the increase in the dividend pales into comparison with Shell’s 50% dividend rise year-on-year, there are still likely to be concerns that BP isn’t making enough hay while the sun shines.
Net debt has fallen to $32.7 billion, but the company could slim down faster given that it needs to be in fighting form to make the right investments when the roaring twenties of higher oil prices comes to an end as the world accelerates towards a low carbon future.
There is some progress towards its renewable strategy. It has purchased a 9GW solar development pipeline in the US and bidding is planned for offshore wind leases in Scotland and Norway via strategic partnerships. Plans for rapid EV charging networks in cities across Europe are being advanced with London the first to take delivery of a rapid hub. But it’s still unclear what level of returns BP will be able to make from its growing portfolio of green energy investments.
Right now on the tight rope of change, BP is still highly reliant on its fossil fuel portfolio, but there are likely to be wobbles ahead, as green targets loom and BP tries to cross the chasm to reach a low carbon future."
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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