Shares of BP plc (ADR) (NYSE:BP) jumped 2.7% on news the energy giant will buy back $8 billion worth of its shares, sharing with shareholders some of the proceeds from the sale of its stake in Russian joint venture TNK-BP Ltd.
The announcement came just one day after BP completed the sale of its 50% stake in TNK-BP to OAO Rosneft for $16.7 billion in cash and 12.8% of Rosneft shares. The buyback was $3 billion more than the projected $5 billion, plenty to offset the expected reduction in BP’s earnings per share resulting from the sale of the TNK-BP stake. BP will also pay down debt with $4.4 billion of the proceeds.
BP plc (ADR) (NYSE:BP) will still hold a 19.75% interest in Rosneft (majority owned by the Russian Government), which has just become the world’s largest listed oil producer by output after purchasing the other half of TNK-BP from the Alfa Rosneft group. BP is now Rosneft’s largest private shareholder.
BP Chairman Carl Henric Svanberg said in statement, “We expect our stake in Rosneft will generate long-term value for BP and its shareholders.”
Russia-owned Rosneft took the title of the world’s largest publicly traded oil and gas company from Exxon Mobil Corporation (NYSE:XOM). Exxon is no stranger to losing titles. In 2012, Apple Inc. (NASDAQ:AAPL) dethroned Exxon as the USA’s most valuable company. Exxon regained the title in 2013 as Apple shares slid among worries of slowing iPhone and iPad sales.
But despite its coveted title, Exxon Mobil Corporation (NYSE:XOM)’s stock has been a laggard for a while. During 2012, shares were up just 5% compared to the S&P’s 12.39% gain. While the company’s Q4 earnings rose 6% to $9.95 billion, revenue slipped to $115.17 billion from $121.6 billion. Intrepid investors could get more bang for their buck with a bold investment in BP.
BP plc (ADR) (NYSE:BP) has some exciting moves lined up. The UK-based company is near cinching a lucrative deal to work with Rosneft in an offshore oil project in the Arctic. The ice covered region has attracted the attention of numerous oil companies that hope to find new reserves in the area to replace diminishing resources in other regions.
Royal Dutch Shell Plc (ADR) (NYSE:RDS.A) has spent billions of dollars and several years to be the first to strike black gold in the Arctic. The frigid expanse may hold as much as a quarter of the Earth’s undiscovered oil, or 90 billion barrels of oil and 1,670 cubic feet of natural gas, according to the U.S. Geological Survey. Despite opposition from environmentalists like Greenpeace, Shell has begun preliminary drilling.
Rosneft is also moving full steam ahead and already has four licenses to explore Russia’s arctic shelf. BP is pushing to get in on the action with Rosneft.
In addition, BP plc (ADR) (NYSE:BP) and some strategic partners will team up in the development of tight oil reserves in Siberia, in numerous natural gas deals and some interesting international projects.
All of this news is very welcomed by BP shareholders who have endured several years of bad press and a declining stock.
Since the April 2010 Deepwater Horizon disaster, deemed the largest accidental marine oil spill in the history of the petroleum industry, which also claimed 11 lives, shares of BP have given back some 30%. BP continues to shell out dollars to cover related costs from the spill. The company has spent or committed about $37 billion in cleanup, restoration costs, individual and government claims.
Many investors have shunned BP plc (ADR) (NYSE:BP) since the calamity. But this fresh news and BP’s fundamentals make shares worthy of a good, long look.
The stock is trading at a modest P/E of 11.61, and shares yield a healthy 4.86%. The company earned $4 billion in the latest quarter, adjusted for one-time items and inventory changes. While that was down from $5 billion a year ago, it handily beat analysts’ expectation of $3.3 billion.
Uncertainties still hover over BP, but shares are certainly looking more and more like a buy.
The article Time to Back up the Truck for BP? originally appeared on Fool.com and is written by Diane Alter.
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