BP to target shareholder returns as firm plans fundamental reset
Oil and gas giant BP has promised to “fundamentally reset” its strategy and improve its performance after profit crashed last year.
On Tuesday, the group reported a near 50 per cent decline in profit for the fourth quarter due to a collapse in profit at its refining arm.
The results prompted boss Murray Auchincloss to pave the way for the firm to renege on more of the ambitious climate commitments set by his predecessor Bernard Looney at its much-anticipated capital markets day later this month.
“We now plan to fundamentally reset our strategy and drive further improvements in performance,” the under-fire executive said alongside his firm’s earnings.
Overall, the company reported a loss for the fourth quarter of $2bn (£1.6bn), compared with a profit of $0.2bn in the same period last year.
Underlying replacement cost profit – which reflects the cost of replacing inventory sold, excluding inventory holding gains/losses – for the quarter fell from $2.3bn in the third quarter of 2024 to $1.2bn.
In the same period last year, the group made $3bn.
The company said operating cash flow for the quarter came in at $7.4bn, around $0.7bn higher for the quarter, and it ended the year with net debt of $23bn.
Based on the results, which fell far short of expectations, BP said it would review its plans for share buybacks in 2025.
However, the company maintained its guidance for shareholder returns in the near term. The company announced a new share buyback of $1.75bn alongside the numbers, and said it would hold its dividend for the quarter.
Murray Auchincloss, chief executive officer of BP said: “In 2024 we laid the foundations for growth. We have been reshaping our portfolio – sanctioning new major projects, and focusing our low-carbon investment – and we have made strong progress in reducing costs.
“Building on the actions taken in the last 12 months, we now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns. It will be a new direction for BP and we look forward to sharing it at our capital markets update on 26 February.”
BP’s earnings take a hit
BP biggest headache last year was the company’s refining business. The margin it made on each barrel of oil refined fell to $17.70 from an average of $25.80 in 2023.
As a result, its refining and trading businesses swung from an underlying pre-tax profit of $3.8bn in 2023 to a pre-tax loss of $67m for the year as a whole.
To try and keep a lid on falling earnings, the group has put its Gelsenkirchen refinery in Germany up for sale.
Richard Hunter, Head of Markets at interactive investor, commented: “Weaker refining margins and lower volumes have been a mainstay of performance over recent quarters, despite BP’s assertion of a “cash balance point” of just $40 per barrel, which would normally imply a comfortable run at current levels.
However, Hunter added: “At the headline level, the group achieved a profit for the year of $381m, which pales into insignificance compared to last year’s $15.2bn. Net debt has risen from $20.9bn to $23bn, despite the benefits of divestments totalling $2.8bn, while the lower profit also impacts operating cash flow, which fell to $27.3bn from $32bn.
“BP is aiming to mitigate some of this pressure, and cost savings of $800m for the year go some way towards an ambitious $2bn target by 2026.”
Under pressure to deliver
BP’s results will increase pressure on the company’s management to steer the group back to growth after years of stagnation.
Over the weekend, it emerged activist hedge fund Elliott Investment Management had built a position in the company. The news sent the stock higher by seven per cent on Monday as investors cheered potential action.
While the size of Elliott’s stake has not been disclosed, the news of its position has fueled talk of an overhaul of BP, its strategy and the company’s board of directors.
After the hedge fund’s position was revealed, analysts at Jefferies said: “Given Elliott’s track record, we believe its involvement could lead to board changes, portfolio rationalisation (with a focus on exiting low carbon assets and certain retail regions), and capital expenditure prioritisation on upstream projects.”
Investors have pushed BP to move away from its strategy under previous chief executive Bernard Looney of gradually reducing its oil production and boosting green energy.
Under Auchincloss, the company has already scaled back green projects and in December, BP said it would spin out its offshore wind business into a $5.8bn joint venture with Jera, Japan’s largest power utility