Major Oil Company Halts Share Repurchase Program Amid Falling Oil Prices
The prominent British oil company recently announced their fourth-quarter earnings, which met expectations. However, they also revealed plans to halt their share repurchase program, a move seemingly prompted by declining oil prices.
The company, based in London, disclosed an underlying replacement cost profit, a measure similar to net profit, of $1.54 billion for the last quarter of the year. This figure is on par with what financial analysts had anticipated.
Annual Net Profit Falls Short of Forecasts
The company's total net profit for the year was $7.49 billion, which didn't meet the predicted $7.58 billion. This is notably less than the nearly $9 billion they earned the previous year.
The decision to suspend share buybacks and dedicate surplus cash to fortifying the balance sheet was made by the board. The previous repurchase plan was worth $750 million and was announced with the third-quarter results.
For the fourth quarter, an 8.320 cents dividend per ordinary share was declared.
Continued Business Progress Despite Challenges
The interim CEO of the company commended the strong financial results and operational performance of the year, alongside significant strides in strategy.
She acknowledged the progress made towards their four main objectives - increasing cash flow and returns, cutting costs, and bolstering the balance sheet. She also expressed the understanding that there is a lot more to be done, and the urgency to deliver is recognized.
Following the decision of the current CEO to step down, the head of an Australian energy company is set to take over the leadership on April 1.
Share Price Takes a Dip
The company's shares dropped by nearly 4% in early afternoon trading, recovering some of the earlier losses in the session.
Other Financial Highlights
- The net debt for the fourth quarter was $22.18 billion, a decrease from around $23 billion the previous year.
- Operating cash flow for the fourth quarter was $7.6 billion, an increase from $7.43 billion the previous year.
- The capital expenditure budget for the coming year is set between $13 billion and $13.5 billion, reflecting the lower end of their guidance range.
Challenging Times for the Oil and Gas Industry
The oil and gas sector in Europe is facing a challenging period. Last year, oil prices suffered their largest annual loss since the onset of the Covid-19 pandemic, largely due to an oversupply, which has put a strain on the industry's commitment to shareholder returns.
Other major industry players have also reported weaker quarterly earnings, citing lower crude prices among other factors.
One company stated it would slash its share buybacks to $1.5 billion this year, a big drop from last year's $5 billion, while also cutting back on investments in renewable and low-emission energy projects. Another competitor maintained its buybacks at $3.5 billion, marking the 17th consecutive quarter of $3 billion or more in buybacks.
The decision to suspend share buybacks is seen as a wise move to prioritize the strength of the balance sheet in a softer commodity price market.
"The decision to cancel them entirely indicates a more cautious approach and a clear focus on financial resilience," said a global energy analyst. "While this move wasn't entirely unexpected, especially considering similar actions by other oil giants, some short-term investors may be disappointed, which could explain the share price weakness seen today. However, prioritizing balance sheet strength in a softer commodity price environment is a sensible step."