BP dividend boost sends shares to four-month highs

There was some rare good news for BP today as underlying Q2 profits came in ahead of forecasts at $2.35bn, only a modest decline from the $2.75bn a year ago.

The number appears to have been boosted by a jump in divestments which rose to $1.35bn. On a replacement cost basis profits were a significant improvement on last year’s $16m loss, coming in at just over $2bn.

Operating cash flow fell from $8.1bn to $6.27bn, with the oil company saying that it has delivered $1.7bn in cost reductions against its 2023 baseline.

This week’s news of a big discovery in Brazil is a significant boost to BP’s ambitions when it comes to focussing on its core business of oil and gas, however the share price reaction to today’s Q2 numbers does seem a little disconnected to the numbers themselves.

BP management have taken the decision to implement another $750m share buyback as well as a 4% increase in the dividend to 8.32c a share, which is good news for shareholders when it comes to returns.

While management have patted themselves on the back in announcing that net debt came down modestly in Q2 from just under $27bn in Q1 to just over $26bn, it still remains $3.5bn higher than it was a year ago.

BP has maintained that it remains committed to meeting its target of reducing net debt to between $14bn and $18bn by the end of 2027, as well as increasing the dividend by 4% every year and expecting total shareholder distributions of 30-40% of operating cash flow over time.

This seems mightily ambitious given the trajectory of its net debt over the past few years which means that not only will this week’s new Brazil assets have to start generating lots of cash flow over the next 2 years, but management will also have to deliver on their promises to improve efficiency.

CEO Murray Auchincloss has said that he and incoming chair elect Albert Manifold, who starts on 1st September, will conduct a thorough review of the portfolio of businesses in the coming months which is welcome.

Nonetheless given management’s recent track record on delivering on its goals, one has to question this ambition.