The company made a couple of other announcements in this earnings release. The first is that it is raising its dividend by 8.3 percent. Although the company reported its quarterly dividend as 9.75 cents, this is in British pounds, based on the shares that trade in London. In the U.S., the company pays a 57 cent per share distribution quarterly, which means that the 8.3 percent dividend increase should bring the payout up to about 62 cents per share.
The company also announced that it plans to continue to divest its Alaskan assets. It is doing so primarily to return capital to shareholders through a new stock repurchase program that will likely be announced once the current plan expires. This should be very soon. In all, BP expects to divest about $10 billion in Alaskan assets, and judging by CEO Bob Dudley’s language, most of this will go toward share repurchases.
Investors may take issue with this strategy, given that Alaska is generally a safe place to produce natural resources. The company is focusing more capital and effort on its new producing assets in the Gulf of Mexico and in Azerbaijan. It also made a couple of large discoveries in Angola and in Egypt. While net production should increase on a per-share basis as a result of the Alaskan divestments, the share buybacks, and the new projects, we have to acknowledge that the company is taking on more geopolitical risk when other companies are exiting these regions. For instance, Apache (NYSE:APA) recently sold its Egyptian assets and is focusing more on its Eagle Ford shale properties in Texas.
Therefore, even though the company is making a lot of money, investors need to decide if they are willing to assume this added political risk in exchange for an extremely shareholder-friendly attitude from a capital allocation perspective.