Analyst Note
| Allen Good, CFA |BP reported a strong rebound in earnings during the first quarter, with adjusted earnings surging to $2.6 billion from $791 million a year ago. Importantly, BP surpassed its $35 billion net debt target during the quarter, well ahead of its year-end goal. This allows for the start of the variable repurchase element of its shareholder distribution plan, beginning with a $500 million repurchase in the second quarter to offset dilution from employee stock awards. With the exception of the second quarter, which will be negatively affected by the Gulf of Mexico spill payment, management expects to generate surplus cash for the remainder of the year at oil prices above $45 a barrel. It will refrain from issuing repurchase guidance until it reports second-quarter results. Regardless, the debt reduction and strong earnings show BP is recovering well from a difficult 2020. We expect further progress throughout the year as BP benefits from an economic recovery. However, its long-term outlook relies less on commodity prices and more on the success of its transition away from its legacy oil and gas business. Our no-moat rating and fair value estimate are unchanged.