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BP plc (LSE:BP.) will embark on a shares buyback programme in the next 12 to 18 months after the receiving the proceeds from the sale of its stake in the TNK-BP venture, the London-based oil giant said earlier Friday.
In a statement, BP said it is going to spend $8 billion from the $12.48 billion received from the sale of 50% of its interest in the joint venture with Russia’s energy firm Rosneft for the purchase of its own shares, which it intends to cancel.
The said amount could purchase about 1.18 billion shares and reduce BP’s issued shares by 6.1%, based on yesterday’s closing price of £4.4940 (US$6.8319) per share.
A share repurchase is one of the ways employed by companies to increase its earnings per share by reducing dilution even when profit is flat.
According to BP’s Group Chief Executive, Bob Dudley, the buyback programme is expected to offset the earnings per share dilution as a result of the sale of BP’s stake in TNK-BP, which also reduced BP’s asset base that had already been reduced as a result of a $38-billion divestment programme to cover the cost of the Gulf of Mexico disaster.
The amount to be spent for the buyback programme, according to BP, is the equivalent of the company’s investment in the venture back in 2003 that has resulted in dividends worth about US$19 billion received in the span of 10 years.
BP decided to sell its holdings in the said venture that had gone awry and has concluded the deal yesterday, giving the firm additional holdings in TNK’s parent company Rosneft, where it now has 19.75% interest.
Dudley further stated “BP is moving on to the next phase of its business in Russia, becoming the largest private shareholder in Rosneft, Russia’s leading oil company.”
Carl-Henric Svanberg, Chairman of BP, said the firm expects the increased stake in Rosneft “will generate long-term value for BP and its shareholders” whilst allowing shareholders to “see benefits in the near-term from the value we have realised by reshaping our Russian business.”
The rest of the cash, according to BP, will be used to reduce its debt and strengthen its balance sheet.
Back in London, shares of BP, a part of the FTSE 100, gained 10.6 pence – or 2.4% – to 460.10 pence by 13:21 GMT at a volume of 24 million shares, one of the most heavily traded stock on the London Stock Exchange today.
