BP announced Friday an $8 billion share buyback program, following through on a promise to reverse the dilutive effect on earnings from its sale of its stake in TNK-BP.
BP, which completed the sale of its 50% stake in TNK-BP to Rosneft on Thursday, said the size of the share buyback also amounts to the total that it invested in cash, shares and assets when it first formed TNK-BP in 2003. Agreeing the terms of its major tie-up with Rosneft in October, BP said it would spend at least $4 billion on share repurchases in order to boost its earnings-per-share measure in the wake of recent assets sales.
The $8 billion buyback plan announced Friday, however, is much larger than the $5 billion of cash which market watchers had estimated BP would need to spend to offset the dilution of its earnings per share.
"BP is moving on to the next phase of its business in Russia, becoming the largest private shareholder in Rosneft," CEO Bob Dudley said in a statement.
"In the process we have also released cash, equivalent to at least six years of BP's anticipated future dividends from TNK-BP," he said.
BP's shares rose by up 3% at market open in London and the stock was trading 2.7% higher at 461.7 pence by 1025 GMT.
BP last bought back its own shares in 2008, spending $2.91 billion on the stock repurchases.
From 2000 to 2008, BP returned a total of $51 billion to its shareholders though buybacks, which are one way cash-rich companies can boost their earnings per share.
BP said it will use the remaining $4.48 billion from the TNK-BP stake sale to reduce its debt, which stood at $27.5 billion at the end of 2012. ASSET SALES
Dudley said the size of the buyback program also reflects the reduction in BP's asset base following its $38 billion divestment program over the past three years to help pay for its 2010 Gulf of Mexico oil spill.
Since the 2010 debacle, BP has undergone a major downsizing, selling off half of its upstream installations and pipelines, a third of its producing wells and more than 10% of its proven reserves.
In terms of production, the company over the last two years has shed 500,000 b/d of oil equivalent, or 16% of its 2010 production, which could have generated $5 billion in pre-tax earnings.
BP took the final step to putting its troubled Russian venture behind it Thursday, closing a $26.5 billion deal to sell its 50% stake in TNK-BP to Russia's Rosneft for cash and shares.
Under the deal, BP is set to take home $12.48 billion in cash and end up with a 19.75% stake in the Kremlin-backed Rosneft, which is taking over TNK-BP at a total cost of $55 billion.
But the deal would see BP's lucrative dividends from TNK-BP more than halve, raising investor concerns about the oil major's future cash flow and shareholder payouts.
Since acquiring 50% of the TNK-BP for around $8 billion nine years ago, BP has received over $19 billion in dividends, or some $2 billion per year.
BP has already met its $38 billion divestment target to help pay for damages from the spill a year earlier than expected. As a result, some stock watchers have speculated that BP would use the additional financial breathing space from the TNK-BP sale to cover further expected legal costs arising from the disaster.
In 2003, BP invested around $8 billion in cash, shares and assets in the formation of TNK-BP. Over the following decade BP received a total of $19 billion in dividends from the joint venture.
BP has calculated that its deal to exit from TNK-BP and take a 20% stake in Rosneft will effectively represent a 3-4% on dilution of its EPS.
