BP in $8B Share Buy-back Program - Analyst Blog

British energy behemoth BP plc (BP) announced an $8 billion share repurchase program to keep its commitment of giving out to shareholders some of the proceeds it gathered from the recent Russian sale.

This news came just a day after the British oil giant and Russia’s state-operated oil company, OAO Rosneft, closed their deal related to TNK-BP. Per the deal, BP divested its 50% stake in TNK-BP in accordance with the terms announced in Oct 2012 and received a net amount of $12.48 billion as well as an 18.5% share in Rosneft. As a result of these transactions, BP has raised its ownership in Rosneft to 19.75%, taking into consideration its existing minority stake of 1.25% in the Russian company.

This buyback program, which will likely take 12 to 18 months for completion, could aid BP’s shareholders to reap future benefits from its Russian restructuring endeavor. This move would return shareholders the equivalent amount of BP’s 2003 investment to form TNK-BP.

BP invested around $8 billion in cash, shares and assets to form TNK-BP in 2003. Over the decade, the company received $19 billion in dividends from the corporation. The recent buyback news pushed BP shares up by 2.8% on Friday to £461.80 in the London stock exchange, much higher than analysts’ expectations. The balance $4.48 billion of the proceeds from the Russian sale will be used to reduce group debt.

BP is facing a trial in New Orleans over the Gulf of Mexico oil spill that killed 11 workers and poured 4.9 million barrels of oil into the Gulf over 87 days, polluting shores from Texas to Florida. The incident compelled BP to cut its dividend in 2010, before resuming payments in 2011.

BP's shares have also plunged about 30% since the disaster in April 2010 and the company spent over $24 billion as compensation to individuals, businesses and governments.

Since then, BP has been busy in reshaping its portfolio through the divestment of smaller non-core properties to pay spill-related costs, while holding on to potential big resources. The Russian deal makes Rosneft the world's biggest listed oil company in terms of market capitalization. On the other hand, BP stands to gain essential access to hydrocarbon reserves in the remote Arctic belt of Russia. BP’s sale of TNK-BP’s stake has helped it in simplifying its operations in Russia via a major strategic shift.

BP carries a Zacks Rank #3 (short-term Hold rating). However, there are other stocks in the energy sector, namely, Enerplus Corporation (ERF), Range Resources Corporation (RRC) and EPL Oil & Gas, Inc. (EPL) , which carry a Zacks Rank #1 (Strong Buy) and are expected to perform impressively over the next few months.
 

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