BP will hand shareholders a surprise dividend increase, and $1.4bn (£1bn) in share buybacks, after the company returned to profit following a rebound in oil prices which it believes could last for the rest of the decade.
The oil giant predicted that the world’s demand for oil will reach pre-pandemic levels by the second half of next year, and lifted the value of its oil reserves by $3bn after revising its forecasts for oil prices higher for the rest of the decade.
However, it lowered its longer-term forecasts to take account of governments quickening the pace towards their climate targets.
Even as BP made its predictions, the volatile nature of the oil market was highlighted again, with Brent crude enjoying an initial 0.8% rise before slipping 0.5% to $72.51 a barrel.
The commodity was undermined for the second day by fears of the spread of the Delta variant, especially in the key oil consumer markets of China and the US. China tightened travel restrictions and increased testing in Wuhan after new cases emerged for the first time in a year.
But a recovery in the oil price since the start of the year helped BP to a better than expected 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.
The company plans to use the healthier cashflows to begin buying back $1.4bn worth of shares, and continue buybacks of $1bn every quarter. 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, and plans to maintain this growth every year until 2025.
BP’s bid to tempt back investors, after a punishing year for oil companies in 2020, pushed its shares 5.6% higher to 306.1p, making them the top riser on the FTSE 100 and helping lift the index to a three-week high.
The oil companies had come under pressure in 2020 as the price of Brent crude tumbled to below $20 a barrel due to a collapse in demand for transport fuels during Covid-19 travel restrictions. Since the first vaccinations were announced oil prices have climbed by almost 50% to just over $75 a barrel.
The company, which is one year into a plan to transform from an oil major to an “integrated energy company”, 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.
But over the long term it has revised down its 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”.
The quicker-than-expected decline in global oil prices could impact oil and gas projects worth about $33bn , and BP 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.
The oil company has built a pipeline of 21 gigawatts 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.”