(Bloomberg) --
BP Plc said it already achieved its $35 billion net-debt target, reaching the threshold at which it has said it can restart share buybacks about a year earlier than expected.
The news reflects an accelerated pace of asset sales and improved business performance, with BP's trading division capitalizing on dramatic moves in energy markets. It marks a potential turning point following a tumultuous year for the industry, in which fuel sales and refining margins were hammered by the impact of the coronavirus pandemic.
So far this year, a “very strong” business performance driven by trading, prices and “resilient operations” has brought borrowings down, the London-based oil giant said Tuesday. Having reached its debt goal, “BP is committed to returning at least 60% of surplus cash flow to shareholders by way of share buybacks.”
The move will be a boon to investors, many of whom had seen peer Royal Dutch Shell Plc as being ahead of the game in returning cash to shareholders, having slightly raised its dividend only two quarters after it was slashed. BP cut its payout last August, a policy u-turn after boosting it just a few quarters earlier.
BP's shares rose 3.4% to 299.75 pence as of 9:46 a.m. in London, extending their gain this year to 18%.
“Given where the stock price is, we expect more than 60% of surplus free cash flow to be allocated to buybacks,” Oswald Clint, an analyst at Sanford C. Bernstein Ltd., said in research note. The energy company also made a strong profit from liquefied natural gas trading in the first quarter, he said.
Energy Shift
While the market welcomed BP's announcement, the firm's value is still down by a third from pre-pandemic levels. That reflects struggles on several fronts, from the lingering effects of the virus crisis to the overhaul of the business amid the energy transition. BP has labored over the past year to convince investors that it can generate high returns while slashing emissions and ramping up clean-energy investments.
It's also selling a raft of assets -- including a stake in a large Omani gas project and an interest in data firm Palantir Technologies Inc. -- and plans to offload $25 billion worth by 2025. BP received around $4.7 billion from disposals in the quarter through March, and now expects such proceeds in 2021 to be at the top end of its $4 billion to $6 billion range, it said Tuesday.
See also: BP Is Said to Field Final Offers for North Sea Energy Assets
BP is among a number of oil majors and independent commodity trading houses to profit from the large swings in prices during the pandemic. The company doesn't break down how much money its trading unit makes, but Chief Executive Officer Bernard Looney has said the division will be key in boosting returns from investments in renewables, which are typically 5% to 6%.
BP's net debt at the end of 2020 was $38.9 billion. It said at the time that the figure would likely increase in the first half of 2021. In February, BP estimated that it would meet its $35 billion debt target between the fourth quarter of 2021 and the first quarter of 2022.
There'll be a further update on debt and buyback plans at BP's first-quarter results on April 27.
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