BP to Restart Share Buybacks as Third-Quarter Production Rises -- 2nd Update

By Sarah Kent Features Dow Jones Newswires

BP PLC reported a healthy set of third-quarter profits and plans to restart its share-buyback program Tuesday, signaling the company is increasingly comfortable with low oil prices as it ramps up its growth ambitions.

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London-based BP said it would start share buybacks in the fourth quarter, supported by strong cash generation so far this year that allowed it to cover its spending commitments and dividend at $49 a barrel.

Investors are increasingly looking at this break-even metric for signs big oil companies have succeeded in shifting their financial frameworks to operate profitably at lower oil prices. BP's plans to restart share buybacks next quarter sends a strong signal of confidence to the market.

BP's share price opened up more than 3% in London, touching highs not seen since oil prices crashed three years ago. This is an improvement from February when shares dived 4% after the company announced it would need oil prices at $60 a barrel to break even this year, following a series of acquisitions. Over the course of the year it has successively revised that number lower, as it reaped the benefits of tough cost-cutting measures and a strong business performance.

BP chief financial officer Brian Gilvary said the company's success in driving down its break-even oil price has exceeded even his expectations. "I was fairly confident last quarter we could get back into break even at $50 to $55 at the end of the year," Mr. Gilvary said in an interview, adding that driving it down to $49 a barrel in the first nine months of the year is "a major achievement."

The company's success in balancing its budget played a major role in the decision to restart share buybacks next quarter.

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The buybacks will offset dilution from the company's scrip program, which gives shareholders the option to take their dividend in stock. Such programs proved helpful to oil companies during the downturn, alleviating the cash burden of their shareholder payouts. But investors are increasingly eager to see companies able to fully cover their dividends with cash.

Of the majors with such programs in place, so far only Norway's Statoil ASA has announced plans to halt the program altogether and BP remains among the first to take steps to offset dilution.

While BP's replacement cost profit -- a number similar to the net income that U.S. companies report -- was $1.4 billion in the third quarter, down slightly from $1.7 billion in the same period a year earlier, its underlying financials were strong.

The company reported its highest underlying earnings in its refining segment in five years, and saw its exploration and production unit return to profit after recording a loss a year earlier.

The company's production rose 14% year-over-year to 3.6 million barrels a day in the quarter, as new projects in Australia, Trinidad and Oman began production -- the latest in a series of developments expected to start up by 2020 that will bring the company's production back up to levels last seen before its fatal blowout in the Gulf of Mexico in 2010.

BP is still working to put the disaster behind it, after selling off billions-of-dollars-worth of assets and paying out huge amounts in fines, legal fees and cleanup costs, some of which are still ongoing. But after years of retrenchment, prolonged by the sudden slump in oil prices in 2014, the company has signaled it is ready to grow again and is able to do so with the oil price at $50 a barrel.

BP is the latest oil major to report a healthy set of results for the third quarter, signaling that the sector has made good progress in adjusting to lower oil prices. Profits at many of the world's biggest energy companies soared over the period, helped by a stronger crude market and stringent spending cuts.

Last week, Exxon Mobil Corp and Chevron Corp. both reported increases in third quarter profits of 50% compared with the prior year. French oil major Total SA's earnings jumped 40%. Royal Dutch Shell PLC will report later this week.

The strong set of earnings plays into a run up in international oil prices to more than $60 a barrel last week -- it is highest level since 2015.

While oil prices remain volatile, Mr. Gilvary said he expects prices to remain in a $50-$55 a barrel range next year. Nonetheless, the company is prepared to adjust in the event of a slide down to $40 a barrel, the CFO said, describing handling such fluctuations as a return to normalcy.

"Plus or minus $10 is kind of what we're paid to manage," Mr. Gilvary said, contrasting the potential for a slide in prices next year with the slump experienced over the last three. "$110 down to $28 is a whole new world of pain for everybody."

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

October 31, 2017 05:21 ET (09:21 GMT)