BP PLC BP. on Wednesday said it will slash renewable spending and up oil and gas investment as the company set out a plan to “fundamentally reset strategy”.
The London-based oil major also expects to announce a USD750 million to USD1.0 billion share buyback in its first-quarter results, this would be down from the USD1.75 billion announced in its annual numbers earlier this month.
BP said it plans to increase oil and gas investment to around USD10 billion per year, though “transition investment” will be around USD1.5 billion to USD2 billion, which the firm explained would be over USD5 billion lower than previous guidance.
Shares in the company were 1.4% lower at 430.91 pence each in London on Wednesday morning.
It represents somewhat of a pivot back from BP, which has faced pressure from activist investor Elliott Management to revive its fortunes. In 2020, BP targeted cutting oil and gas production by 40% by 2030.
According to Bloomberg earlier this month, Elliott Investment Management built a significant stake in the London-based firm, and has called on it to consider transformative measures.
The BP strategy update set out four “primary targets”, which were growing free cash flow, trimming net debt, upping its cost reduction aim and “generating higher returns”.
Chief Executive Officer Murray Auchincloss said during Wednesday’s strategy update: “We will grow upstream investment and production to allow us to produce high margin energy for years to come. We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset BP, with an unwavering focus on growing long-term shareholder value.”
The plan to cut oil and gas output was unveiled by Bernard Looney, the CEO at the time. BP aimed to be “net zero by 2050”, it announced in an update back in February 2020.
Current CEO Auchincloss stepped into the role after Looney was dismissed over his personal conduct. Auchincloss, previously the finance chief, took on the CEO role in an interim basis in September. He was made permanent CEO last month.
BP Chair Helge Lund said Wednesday: “The board believes that this is an important strategic reset for BP and is confident that it, together with rigorous performance management, will deliver improved performance and sustainable value for BP’s shareholders. Over the past 12 months, we have worked closely with Murray and his team as they have developed the new direction, ensuring it reflects the significant changes we have seen in energy markets and our purpose of delivering energy to the world today and tomorrow. This new direction places free cash flow growth, returns and value at its heart.”
BP said it will cut capital expenditure to a range of USD13 billion to USD15 billion per year up to 2027, between USD1 billion and USD3 billion lower than in 2024, In 2025, capex of around USD15 billion is expected.
It also plans to “significantly” increase its annual cost reduction aim to USD4 billion to USD5 billion by the end of 2027, compared to a 2023 baseline. It noted USD800 million of cost cuts were delivered last year. BP in May said it was aiming for at least USD2 billion of cash cost savings by the end of 2026 relative to 2023.
Last month, it said it would cut 4,700 jobs across its global workforce and 3,000 contractor roles as part of a cost-saving drive.
On divestments, BP said it is aiming for USD20 billion worth of deals to be announced by the end of 2027. It noted proceeds from a “strategic review of Castrol” and bringing a “partner into Lightsource” will go towards boosting its balance sheet.
Castrol is a lubricants supplier, while Lightsource is a solar developer. Castrol forms part of the Downstream offering at BP. In Downstream, it plans “focusing investment ” to around USD3 billion by 2027.
In Upstream, it plans 10 new major projects to start by the end of 2027, and a further 8 to 10 by the end of the 2030.
BP plans to reduce net debt to a range of USD14 billion to USD18 billion by the end of 2027. Its net debt at the end of last year stood at USD23.00 billion.
On distributions, it plans to return 30% to 40% of operating cash flow to investors “over time”. This will come in the form of share buybacks and a “resilient dividend”. The dividend is expected to rise by at least 4% per year.
“Share buybacks are expected to be announced at time of quarterly results. Subject to board approval, BP expects the share buyback for 1Q 2025 to be [USD750 million- USD1.0 billion],” it added.
BP is aiming for a more than 20% compound annual growth in adjusted free cash flow to 2027 and returns on average capital employed of over 16% by 2027.
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