News & Analysis

Slick move by BP lands shareholders $1.4bn windfall; stock becomes biggest riser on FTSE 100

Andrew Saks, Tuesday, 3 August 2021

Good old traditional fossil fuel. There may well be an increasing number of relatively powerful voices tutting in disapproval and using trendy phrases such as 'ESG' and 'carbon zero', but ultimately there is nothing quite so powerful as the silent voice of supply and demand to remind the world that the oil-rich plutocracies of the world are sitting calmly, ignoring the smile-for-the-camera, elbow-bumping attempts to be on trend from the western leaders.

The reality is that the thick black stuff is highly valuable, is in great demand and is flowing out of the ground with fervent vigor.

BP, formerly British Petroleum, is one of the evergreen oil giants which continues to go from strength to strength, has brushed off several instances of high profile finger-pointing around exactly the type of mishap that makes the case for 'clean' energy, and has largely ignored the multi-billion dollar sustainable energy drive that many Western governments are on, largely because the majority of the world's population, especially in areas which are highly industrialized such as South East Asia are fully dependent on oil consumption.

In fact, despite the US being one of the leading voices and innovators in moving away from fossil fuel, the United States is still the third largest importer of crude oil in the world after China and India.

BP, therefore is on a roll.

The company today announced that it will hand shareholders a windfall of $1.4bn 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.

BP's prediction was absolutely right. A few months ago, Goldman Sachs predicted that oil would go toward $80 per barrel when at the time it was around $60, and this seemed outlandish, however it did indeed increase to almost that level by the end of last month.

These rising global oil prices helped BP make an underlying profit of $2.8 billion for the three months to June, up sharply from a loss of $6.68 billion in the same quarter last year when the lockdowns brought the oil industry to a standstill and created negative equity values for oil for the first time in history.

BP plans to use the healthier cashflows from the first half of the year to begin buying back $1.4 billion worth of shares, and will continue buybacks of $1 billion 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.

Being a solid, blue chip giant, it is rare for any significant volatility to occur in BP shares, however today's news has proven to be good news and the company's share price is up 3.21% on the UK market open, and is now standing at a five-day high at 298.85p per share, that's 2.94% increase over a five-day average.

This has also stood BP as the top riser on the FTSE 100 today.

It's interesting that on the tech-orientated New York exchanges, it's vain, self-styled blowhards like Elon Musk and Jeff Bezos who are trying to reinvent the wheel and call it trendy that are dominant, whereas in the classical, long-established chambers of the London Stock Exchange, a company as socially out of favor, who those exact individuals would have you believe is obsolete, is right up there at the top, leading the way.

Therefore, the conundrum remains: which is more influential? The hot air of the climate zealots, bumping their elbows and posing for social media, or the combustible substance that fuels the entire industrial base of the world?

That, today, is clear to see.

 

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