BP indicated Tuesday it may spend over $4 billion on a new share buyback program in order to recover its earnings-per-share measure in the wake of recent assets sales and a tie-up with Rosneft in Russia.
The oil major agreed last week to sell its half stake in lucrative Russian venture TNK-BP to Rosneft for some $26 billion in a move which will likely see its dividends from its Russian operations more than halve.
BP calculates that the agreement to exit TNK-BP and take a 20% stake in Rosneft will effectively represent a 3-4% on dilution of its EPS, BP's CFO Brian Gilvery said Tuesday.
In order to recover BP's existing EPS levels, the company would require at least $4 billion in share buybacks to reduce its current share base, Gilvery said.
Announcing the sale terms of its deal to sell its 50% stake in TNK-BP to Rosneft last week, BP said it plans to at least offset any dilution to EPS as a result of the sale of its interest in TNK-BP.
Although not yet complete, the sale of BP's TNK-BP stake, takes BP's combined asset sales since 2010 to way above its $38 billion target for the end of 2013.
"It's reasonable to say that, if you've sold $38 billion worth of assets, you've shrunk the equity, [so] you should also shrink the share base, that's kind of where our intent is there," Gilvery told analysts on a conference call.
Gilvery said BP has already talked to its shareholders over what the oil major should do with the $12.3 billion in cash it is set to receive from its sale of the TNK-BP stake.
Since acquiring 50% of TNK-BP for around $8 billion nine years ago, BP has received over $19 billion in dividends, or some $2 billion per year.
Last year, BP's holding in TNK resulted in a larger than normal $3.7 billion payout.
Last week, oil analysts at Credit Suisse estimated BP's Rosneft deal is 3.8% dilutive to its EPS and said the producer will need to use $5.1 billion of cash to offset the dilution.
BP last bought back its own shares in 2008 when it spent $2.91 billion.
From 2000 to 2008, BP has spent a total of $51 billion on share buybacks, which are one way cash-rich companies can boost their EPS.
