The chief executive of BP has vowed to ‘fundamentally reset’ the group’s strategy after its profits fell by more than a third last year.
Later this month, BP is expected to announce plans to scale back renewable projects and double down on oil and gas.
There have been calls from investors for BP to abandon its environmentally friendly strategy and return to focusing on oil and gas. These investors are eager to see if BP will announce any changes to their plans in two weeks.
The announcement comes days after activist investor Elliott Investment Management was widely reported to have bought a stake in BP.
Following a significant increase in the US fund’s investment in BP, the company’s shares rose by 7.4% as investors speculate that this move may lead to a revision of BP’s strategy and a reshuffling of the board.
BP today posted a 36 per cent drop in underlying replacement cost profits, the company’s preferred earnings measure, to £7.22billion for 2024.
New strategy: The boss of BP has vowed to ‘fundamentally reset’ the group’s strategy
Despite the positive news on the investor front, BP’s fourth-quarter earnings did not meet expectations, dropping by 61% compared to the previous year to £947 million. This decline is attributed to stagnant oil prices and weak margins in oil refining, marking the weakest performance for the company since 2020.
Chief executive Murray Auchincloss said: ‘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.’
He said it would be a ‘new direction for BP’, with the firm set to unveil further details at a keenly-awaited strategy update on 26 February.
Auchincloss has been working towards rebuilding investor confidence in the company, following the abrupt resignation of his predecessor Bernard Looney in September 2023 for failing to disclose relationships with employees.
On the group’s decision to return to its oil and gas roots, Neil Wilson, of TipRanks, said: ‘ The process of shifting from the Looney-era green bets had already begun but Elliott has kicked up a notch or seven.
‘Weaker average oil prices are a problem, so are new refining plants in Asia and Africa which are pushing down on margins. These are industry-wide pressures, though, and the decline in BP is more about the strategy and where the capex should go. All eyes on the delayed investor day on 26 February 26 now.’
The company’s quarterly earnings were dragged down by weaker realised refining margins. Its fourth-quarter average refining marker margin stood at $13.1 per barrel, down from last year’s $18.5 per barrel.
On a statutory basis, BP saw replacement cost profits plummet to £607million last year, down from £13.1billion in 2023.
BP joins other oil majors that have experienced a decline in earnings throughout 2024, following record earnings in the previous two years, as energy prices stabilised and global oil demand weakened.
Looking ahead, BP said it expected its first quarter 2025 upstream production to be lower compared with the final quarter of 2024.
It added: ‘In its customers business, BP expects seasonally lower volumes compared to the fourth quarter. In addition, BP expects fuels margins to remain sensitive to movements in cost of supply and earnings delivery to remain sensitive to the relative strength of the US dollar.’
BP shares slipped 0.32p to 464.84p on Tuesday, having fallen over 3 per cent in the last year.
Richard Hunter, head of markets at Interactive Investor, said: ‘Expectations were low going into the final quarter and full-year numbers and, unfortunately, BP has duly delivered.
‘BP is aiming to mitigate some of this pressure, and cost savings of $800million for the year go some way towards an ambitious $2billion target by 2026.’
On BP’s share price, Hunter said: ‘A slightly stronger oil price and the latest buzz of speculation around Elliott Management has resulted in the shares having spiked by 25 per cent over the last three months.
‘Even so, this has not been enough to prevent a decline of 3 per cent over the last year, as compared to a gain of 16 per cent for the wider FTSE 100, and a drop of 17 per cent over the last two years.
‘It seems most unlikely that the neutral view of the group will change ahead of the strategic update, with the market consensus confining the shares to a hold, albeit a strong one.’
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