BP, Europe's second-largest oil company, should use some of the cash it has raised through asset sales to repurchase its own stock, according to an analyst note issued by Citigroup today. Following the Gulf of Mexico oil spill in April 2010, the British oil giant pledged to sell $30 billion in assets to raise cash for spill-related costs. The company has thus far sold about $25 billion in assets.
BP (BP) has seen its U.S.-listed shares plunge about 30% since the Deepwater Horizon rig exploded in April 2010 compared to a gain of about 18% for the S&P 500 over the same time frame. Year-to-date, BP's American depositary receipts are down fractionally while the S&P 500 is higher by about 6%.
Among the world's biggest oil companies, the average cash return on capital invested has slipped to about 10% this year from about 17% in 2001, suggesting mega-mergers in the oil sector have not delivered returns to shareholders as previously hoped, Bloomberg News reported, citing the Citigroup note.
Citi said BP's slack performance this year has more to do with investors' fear that they will not be compensated following asset sales than it does with BP's failure to execute a $16 billion share swap and Arctic exploration alliance with OAO Rosneft, Russia's largest oil company.