Please ensure Javascript is enabled for purposes of website accessibility

Oil Giant to Resume Share Repurchases After Slashing Debt to $35 Billion

By Neha Chamaria - Apr 6, 2021 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BP has hit its net debt goal a year early and wants to use surplus cash to buy back shares.

BP's (BP 1.84%) humongous debt load has been a reason for concern among investors, so the latest announcement from the oil giant should come as a breather.

During its fourth-quarter 2020 earnings conference call, BP's management reiterated the company's goal to achieve a net debt of $35 billion in 2021 but said it expected to reach the target only around the fourth quarter of 2021 and the first quarter of 2022.

In a reassuring development, BP announced on April 6 that it hit a net debt of $35 billion in the first quarter of 2021, nearly one year ahead of schedule, thanks to a strong business performance backed by rising oil prices and "earlier than anticipated" delivery of proceeds from the divestment of assets.

During the first quarter, BP received nearly $4.7 billion in proceeds from the sale of assets, including:

  1. Petrochemicals business.
  2. Twenty percent interest in Oman's Block 61 natural gas project.
  3. Forty-nine percent interest in an affiliate holding refined product and crude logistics assets.
  4. Stake in data firm Palantir Technologies.
Oil pumps with the setting sun in the background.

Image source: Getty Images.

The proceeds helped BP bring down its net debt to $35 billion as of the quarter ending March 2021 from $38.9 billion debt at the end of 2020.

BP now expects to raise disposal proceeds at the top of its guidance range of $4 billion to $6 billion in 2021. It is targeting proceeds worth $25 billion between 2020 and 2025, and has already raised roughly $10 billion of that amount.

Also in line with its earlier commitment to shareholders, BP reiterated its intention to resume share repurchases on reaching the net debt target. The company intends to return at least 60% of its cash flows to shareholders in the form of share buybacks, although it didn't provide a dividend update. The oil market downturn forced several oil stocks, including BP, to slash dividend and suspend share repurchases last year.

BP would be among the first oil majors to resume share repurchases after the COVID-19 recession. Last month, ConocoPhillips (COP 1.54%) resumed its share repurchase program while keeping its capital spending budget for 2021 intact, with management citing strong commodity prices as the major reason behind its decision to return more capital to shareholders.

Investors in BP should mark April 27 on their calendars. That's when the company will release its first-quarter earnings, and provide further updates on its capital allocation and share repurchase plans.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BP p.l.c. Stock Quote
BP p.l.c.
$31.59 (1.84%) $0.57
ConocoPhillips Stock Quote
$107.13 (1.54%) $1.63
Palantir Technologies Inc. Stock Quote
Palantir Technologies Inc.
$8.12 (1.03%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.