Shares in BP leapt today after the FTSE 100 oil giant unveiled plans to return $8bn (£5.3bn) to investors, a day after completing the sale of its troubled TNK-BP Russian joint venture.
BP will make the payment to its investors through a series of share buybacks that are intended to recompense them for the profits it will lose as a result of the TNK-BP sale.
BP chief executive Bob Dudley estimates that the buybacks will be equivalent to at least the next six years’ worth of dividends the oil company would have received had it held on to its 50% stake in TNK-BP.
The company is in a position to finance the buyback from the proceeds of its $26bn cash-and-shares sale of the Russian stake to Rosneft, after the deal was formally completed yesterday.
Santander analyst Jason Kenney said: “It’s good news that they’re returning that amount of cash, probably $2bn to $2.5bn more than what was anticipated.”
Shares in BP jumped 12.16p, or 3%, to 461.56p, as the buyback announcement formally called time on BP’s unhappy — though still profitable — involvement in the joint venture. Since it was set up in 2003, the venture has paid BP about $20bn in dividends, representing about a fifth of the group’s profits.
However, the partnership with AAR — the consortium of billionaire investors that owns the other half — has frequently been fraught, with hostilities escalating in 2011 following BP’s attempted tie-up with Rosneft.
The AAR consortium successfully blocked that tie-up in court on the basis that the TNK-BP shareholder agreement entitled them to first refusal on any opportunities within Russia.
The relationship between the two partners quickly became untenable and in October both agreed to sell their half of the joint venture to the state-controlled Rosneft.
BP’s cash-and-shares deal leaves it with a 19.75% stake in Rosneft, making it the second-biggest shareholder after the Kremlin and paving the way for the pair to work together inside and outside of Russia.
Dudley said: “BP is moving on to the next phase of its business in Russia… We look forward now to working closely with Rosneft and together developing opportunities to create value for both companies.”
The buyback should go some way to appeasing BP’s investors who have seen their dividends — and their shares — tumble following the Gulf of Mexico oil spill in 2010.
Before that disaster, BP’s annual payout for 2009 came in at 36.4p a share and accounted for £1 in every £6 of the dividends paid to UK pension funds. Initially the dividend was suspended following the Gulf of Mexico accident, but it has since been reinstated and has risen steadily. However, at 16.67p in 2012, it is still less than half of its peak value.