Oil major BP lit up the Footsie risers’ board today as it revealed forecast-beating profits, a dividend hike and plans to off-load some $10 billion (£6.2bn) of assets.
Most of the proceeds from the two-year disposal progamme will be distributed to shareholders, chiefly in the form of buy-backs. It is a more aggressive sale process than previously flagged.
Investors across the sector have expressed concern that rising costs will allow spending to balloon, crimping cash flow should oil prices drop, and reducing the industry’s ability to offer them returns. They want spending controlled and spare cash returned to their pockets.
Investec analyst Neill Morton said: “The stock market doesn’t want the oil majors to spend money. Instead, investors want their cash back.
“And BP has obliged, with an increase in the dividend, a new $10bn disposal programme and flat capital expenditure in 2014.”
News of the asset sales came as BP posted an underlying profit of $3.7bn for the third quarter, a fall of 26 per cent on a year earlier but better than City forecasts for a decline of 37 per cent. The quarterly dividend was raised by 5.6 per cent to 9.5 cents a share.
Its overall charge relating to the Gulf of Mexico disaster in 2010, which left 11 workers dead and sparked the worst oil spill in US history, stood at $42.5bn at the end of September, but this was little changed on three months earlier.
The firm has benefited from a recent ruling by a US federal appeals court that the terms of a compensation agreement struck with BP last year should be reviewed to help stem bogus or inflated claims. It has already sold some $38bn of assets, mainly to pay for the Gulf oil spill.
Helal Miah, investment research analyst at The Share Centre, noted that the fall in profits was largely due to a decline in refining margins and recommended the stock as a “buy”.
He said: “BP is still in the realms of transforming itself from the company it was prior to the Gulf of Mexico oil spill and is progressing well.
“It is in the process of restructuring its portfolio, selling off low returning assets and investing more in those which have higher growth opportunities.
“Initially this will result in a smaller and leaner operation, with production set to fall in the near term, however this is being sacrificed for the longer term prospects.”
Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers, added: “BP has surprised to the upside. Profit has exceeded forecasts, whilst news of an increase in the dividend payment is greatly welcomed.
“On the downside, the Gulf of Mexico accident still overhangs, headline production has again declined, as business sales continued, whilst weaker refining margins, particularly in the US, further impacted.”
Shares in BP closed up 5.6 per cent or 25.4p at 477.5p, giving the group a market value of about £85bn.
Rivals Chevron, Exxon Mobil, Shell and Total are all due to report results this week, with disruption in Nigeria likely to continue to weigh on Shell’s third-quarter numbers when it updates the City later this week.