BP turns leaner and meaner

Shares in BP soared after the oil giant ditched billions of dollars-worth of assets and jacked up its dividend.

Oil giant BP announced underlying profits of $3.7bn in the third quarter, down from $5bn a year ago, but ahead of expectations. The drop was largely due to asset sales.

It has ditched $38bn of its holdings to compensate for the cost of its 2010 Gulf of Mexico oil spill. BP announced another $10bn of disposals and said the money would go to shareholders.

It also raised its dividend by 5.6%. The stock jumped by 5%, propelling the FTSE 100 to a five-month high.

What the commentators said

Oil majors have more than doubled capital investment to $130bn in the past seven years, according to McKinsey, but the splurge hasn't been productive.

Return on capital is still below the level of five years ago. So investors are glad BP is keeping spending levels flat and giving them money.

Meanwhile, said John Ficenec in The Daily Telegraph, even though revenue is to decrease over the next few years as disposals are made, profitability and cash flow look set to improve. So the oil business is becoming more efficient.

That is the reason why the management is confident enough to increase the dividend. "Shrink to fit worked for Levi's," said Lex in the FT. "It seems to be working for BP too." The company has, indeed, become "leaner and meaner".

Nonetheless, there is still a "huge unknown around the court ruling in the US", said Ficenec. At issue now is how much oil was spilt.

If BP is found to have been grossly negligent, it could face fines of more than $18bn.But if its estimate of the oil spill is accepted and it is deemed merely negligent, the fine will be just $2.7bn. Shareholders can't relax just yet.

Recommended

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022
Share tips of the week – 1 July
Share tips

Share tips of the week – 1 July

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
1 Jul 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
Gold has been incredibly boring to own – but that’s no bad thing right now
Gold

Gold has been incredibly boring to own – but that’s no bad thing right now

Stocks, bonds and cryptocurrencies have all seen big falls this year. But gold remains at its one-year average. It may be dull, but it’s doing what it…
29 Jun 2022