BP is facing increasing scrutiny from investors and analysts amid concerns that the energy giant may be forced to scale back or suspend its share buyback programs if oil prices fail to recover. The company has already reduced its guidance for first-quarter share buybacks to between $750 million and $1 billion, significantly lower than in previous periods, pointing to a potential annual buyback range of $3 billion to $4 billion. This is in stark contrast to rivals like Shell, which remains committed to robust buybacks, even if oil prices dip to $50 a barrel.
Analysts from UBS, RBC, and Bank of America suggest that BP’s ability to maintain its current pace of shareholder returns is heavily dependent on oil price trends. UBS anticipates a drop in BP’s quarterly buybacks to around $500 million after the first quarter. RBC has gone further, warning that BP may need to suspend all buybacks next year if Brent crude falls to $60 a barrel. Bank of America projects a reduction in buybacks to $2.5 billion for the year if prices hover at $65, with a complete suspension also possible at $60.
The pressure on BP is amplified by its relatively higher debt levels compared to peers. This financial leverage has led to more investor inquiries about the sustainability of BP’s capital return policies than those of other major oil companies. In a recent strategy update, BP reaffirmed its commitment to returning 30-40% of operating cash flow to shareholders via a combination of dividends and share repurchases, even as it cuts costs by $4-$5 billion annually and looks to bolster cash flow through new projects and a refining business revival.
In the February update, BP also revised its oil and gas price assumptions for the mid-term, expecting Brent crude to average $71.5 to $74.4 per barrel from 2025 to 2027 and U.S. benchmark natural gas prices to range between $4.1 and $4.3 per million British thermal units. This forecast significantly exceeds current market prices, suggesting that the company is banking on a recovery to meet its financial targets.
As BP prepares to report its first-quarter earnings on April 29, all eyes will be on whether its cost-cutting and project ramp-ups can offset the headwinds from weaker commodity prices and restore investor confidence.
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