RBC Capital upgrades BP to 'outperform'

The bank said the fundamental problem BP had in 2020 was that at $40/bbl oil, it looked extremely challenging to build a new business while maintaining competitive returns to shareholders.

"On a higher commodity deck, life gets a bit easier," it said. "We still have some concerns around capital allocation…but ultimately the pivot made in 2020 will take a number of years to be proven right or wrong. In the meantime, the core business should continue to drive the investment case."

RBC said its "bullish commodity price deck" suggests the company is likely to generate significant free cash flow in the coming years. It noted that BP plans to return at least 60% of its surplus free cash flow to shareholders via buybacks over time, in addition to its dividend.

"On our deck, which calls for more than $100/bbl oil this year, we see BP returning 12.4% to shareholders in 2022, the highest in the sector," it said.

"Over the next five years, we see the potential for investors to receive more than 50% of BP’s market cap back via dividends and buybacks, again the highest in the sector."

RBC said that on its our assumed buybacks of $8bn in 2022, BP could be purchasing around 12% of shares on a daily basis through the year on average.