BP will hand shareholders a windfall of $1.4bn (£1bn) through share buybacks and has promised to increase its dividend by 4% a year up to 2025 after predicting a short-term increase in global oil prices before a quicker than expected shift to low-carbon energy.
Rising global oil prices helped BP make an underlying profit of $2.8bn for the three months to June, up sharply from a loss of $6.68bn in the same quarter last year when Covid-19 brought the oil industry to a standstill.
BP plans to use the healthier cashflows from the first half of the year to begin buying back $1.4bn worth of shares, and will continue buybacks of $1bn every quarter alongside dividend growth of 4% a year until the middle of the decade.
BP also increased its dividend by 4% to 5.46 cents for the second quarter, having halved it to 5.25 cents in July 2020.
The company, which is one year into a plan to transform from an oil major to an “integrated energy company”, announced the shareholder sweeteners after raising its oil price forecasts for the rest of the decade and lowering them over the longer term as governments quicken the pace towards their climate targets.
Shares in BP rose by 2.7% in early trading on Tuesday to 297.5p, making them the top riser on the FTSE 100.
Royal Dutch Shell, which has put forward less ambitious climate targets, last week raised its dividend by almost 40% and kickstarted share buybacks worth $2bn.
BP expects the price of Brent crude to average $60 a barrel over the rest of the year, up from its previous forecast of $55 a barrel, and remain at this level until the end of the decade to reflect “near term supply constraints” in the global market.
It has revised down its long-term oil price forecasts to an average of $55 a barrel by 2040 and $45 a barrel by 2050 because the company’s management expects “an acceleration of the pace of transition to a lower carbon economy”.
BP has identified oil and gas projects worth about $33bn that could be negatively affected by another downward revision to its long-term future oil price forecasts, and warned there was “a significant risk of impairment reversals or charges” as a result.
The BP chief executive, Bernard Looney, promised last year to increase low-carbon investments eightfold by 2025, and tenfold by 2030, while cutting the company’s fossil fuel output by 40% from 2019 levels as part of his plan to reinvent BP as a “net zero carbon” business by 2050.
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The oil company has built a pipeline of 21 gigawatts (GW) of renewable energy projects, including plans for two large offshore windfarms in UK waters, and has divested $10bn worth of oil and gas assets.
“We are a year into executing BP’s strategy to become an integrated energy company and are making good progress – delivering another quarter of strong performance while investing for the future in a disciplined way,” Looney said.
“This shows we continue to perform while transforming BP – generating value for our shareholders today while we transition the company for the future.”