The announcement will come as a big boost to shareholders, with the oil giant having previously said it wasn’t likely to cut borrowing to that level until around Q4 2021 – Q1 2022, down from $51.4 billion in Q1 2020.
Reaching $35 billion will allow BP to begin its planned share buyback programme, improving the performance of its stock.
When it achieves the target, the firm said it is «committed to returning at least 60% of surplus cash flow to shareholders by way of share buybacks, subject to maintaining a strong investment grade credit rating».
BP’s strategy involves cutting oil production by 40% over the next decade while boosting investment in renewable projects.
Net debt, at $38.9 billion at the end of Q4 2020, was expected to increase during the 1st half of 2021 due to severance payments, a deal with Equinor on completion of its joint venture in US offshore wind and annual pre-tax payments $1.2 billion for the Deepwater Horizon oil spill.
However BP expects proceeds from the sale of parts of its business to help cut debt, with 2021 proceeds to be at the top end of the previously announced $4-6 billion range.
That includes $2.4 billion from the sale of a 20% stake in Oman’s Block 61, $1 billion as the final payment of its global petrochemicals business to Ineoes and $400 million from the sale of an interest in software and data firm Palantir.
BP also cited $700 million from the sale of 49% of «a controlled affiliate» with refined product and crude logistics assets onshore in the US.
The firm said its has now received $10 billion in proceeds from completed deals worth $14.7 billion, underpinning its goal of $25 billion disposal proceeds between H2 2020 and 2025.
CEO Bernard Looney said:
- We are pleased to announce that we now expect to have reached our $35 billion net debt target during the 1st quarter 2021
- This is a result of earlier than anticipated delivery of disposal proceeds combined with very strong business performance during the 1st quarter
- We look forward to updating the market at our 1st quarter results, including further information on share buybacks
Mark Nelson, analyst at Killik & Co, said:
- This is a positive announcement from BP signalling strong performance in the 1st quarter of the year, the earlier-than-expected start of cash returns to shareholders, while at the same time providing evidence that it can deliver on its various strategic initiatives
- We are Buy rated on the company’s shares which trade on a price to December 2021 earnings ratio of 11.3x and offer a prospective dividend yield of 5.3%
Author: Allister Thomas
