BP is working on an assumption oil prices will average $50 to $55 a barrel next year as global inventories gradually return to normal levels.
An agreement reached between Opec and other major oil-producing nations to limit output in order to reduce a glut is having an impact, said chief financial officer Brian Gilvary, but he did not expect oil prices to remain at their current levels above $60 a barrel.
“By the end of next year we will be back at a more normal stock level. It will continue to be bumpy into next year and I wouldn’t be assuming those levels of prices for next year,” said Mr Gilvary. “I think $50-$55 is a pretty good working assumption for next year.”
BP will be able to generate profit next year at $50 a barrel and perhaps $45 a barrel, said Mr Gilvary. In the longer term the company is working to reduce its breakeven level to $35 a barrel, he said.
BP will become the first major European oil and gas company to resume share buybacks since the 2014 price slump, a sign years of austerity have paid off.
The surprise announcement came as the oil company reported a doubling in third-quarter profit, and in a week crude prices hit two-year highs above $60 a barrel. Coupled with strong growth in its oil and gas production and cash flow, the resumption of buybacks in the fourth quarter lifted BP’s shares to their highest in over three years, when oil prices were still around $100 a barrel. The shares rose as much as 4% at one stage.
The move comes as BP gradually shakes off the impact of the deadly 2010 Deepwater Horizon spill, known as Macondo, that cost it over $63bn (€54bn) in clean-up costs and penalties.
“After three years of oil price correction and seven years after Macondo we are now back into a more normal state of growing the business in current environment and we can deal with prices that go lower,” said Mr Gilvary.
BP is the first among Europe’s top oil and gas companies to reintroduce buybacks, although some are making other moves to woo shareholders. Norway’s Statoil, for example, has said it will stop offering a “scrip” dividend — paid in shares rather than cash — in the fourth quarter, while France’s Total plans to do so next year. Royal Dutch Shell reports results tomorrow.
“Today’s announcement is a very positive surprise, emphasising the progress made in the reset of the BP in the aftermath of Macondo and in the context of lower oil prices,” said UBS analysts.
In one of the clearest signs yet that it has turned a corner, BP said it was able to balance its books so far this year at $49 a barrel, excluding Macondo payments, as years of cost cuts pay off.
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