BP shares down: What is going on at the oil giant?
Once-dominant energy giant BP is running on empty as it curbs shareholder payouts and unveils fresh attempts to bolster its balance sheet.
The London-based oil baron announced in its final results on Tuesday that it has suspended its share buyback programme and increased its cost-cutting goal as it looks to reverse its fortunes in the next financial year.
The company said the decision was taken to allow it to increase investment into its oil production business and “fully allocate excess cash” to its balance sheet.
The group also increased its cost-cutting goal by $1.5bn, aiming for cuts between $5.5bn and $6.5bn by the end of 2027.
In the wake of the announcement, the group’s share price plunged 5.2 per cent in the early morning to 452.7 pence, as investors expressed their frustration.
The group was also found by market analysts to have yanked the FTSE into the red, with the index down 0.5 per cent early in the morning before settling at a 0.3 per cent drop.
It’s a far cry from its 1990s “golden era,” when the group was considered one of the largest energy companies in the world, luring investors with several years of strong annual growth.
Adam Vessette, market analyst at Etoro, said: “BP’s results this morning underline a business that is holding up operationally, but still struggling to convince investors it has a clear growth story.
“The decision to pause share buybacks… While management is framing this as balance sheet discipline, for many shareholders it removes an important support for the share price and raises questions about confidence in future cash flows.”
The once FTSE darling has been no stranger to devastating events and investor anger, with shares dropping following the damning 2010 Deepwater Horizon explosion, which saw the company paying over $65bn in costs, fines and legal fees.
But, over the past six years in particular, the company has multiple stumbling blocks, so what happened?
Renewable energy U-turn
In 2020, the oil supermajor made an ill-fated decision that analysts argue led to its current situation of trying to reverse its aggressive push into green energy.
Under former chief executive Bernard Looney, the group announced plans to cut oil production by 40 per cent by 2030, increase low-carbon investment, and become a net-zero company by 2050.
However, this ambition quickly soured as investors grew increasingly restless about the fate of both profits and the share price.
Rivals such as ExxonMobil doubled down on fossil fuels, raking in record profits during the 2022 energy crisis, while main competitor Shell recorded its highest annual profit in history, all while BP’s green profits left valuations lagging.
This forced the group to retreat from its green ambitions, scaling back its targets: it previously dropped its oil production target by 25 per cent by 2030, before ultimately scrapping it altogether.
The group has maintained its ambition to become net-zero, but has also slashed its renewable energy budget by more than $5bn annually in 2025 as it has shifted back to oil and gas.
Looney toppled
In the chaos of BP’s race back to fossil fuels, Looney also left the company under a large grey cloud.
The former chief executive resigned with immediate effect in 2023, following an investigation into his failure to disclose details of past relationships with colleagues.
He himself admitted he had not been “fully transparent”, with the firm stating Looney had given “inaccurate and incomplete assurances” during the investigation.
Looney was forced to forfeit up to £32.4m, with his long-term performance share awards lapsed and his 2023 annual bonus, which represented 87 per cent of the package, also lapsed.
The Board also decided to halt other payments and bonuses.
Following his resignation, shares slipped, raising concerns about the green strategy, with Looney as the plan’s primary architect, ultimately triggering a period of group-wide recalibration.
Recovery in touching distance
The group reported adjusted profits of $1.5bn in the final quarter, down from $2.2bn in the prior quarter, but in line with analyst expectations.
Net debt remained broadly unchanged, standing at $22.2bn, while full-year profits also dwindled to $7.5bn, amid the price of crude oil dropping by roughly 20 per cent.
The tumble in profits brought to an end a turbulent year for BP, which began with activist investor Elliott Investment Management pushing for major strategic shifts away from heavy investments in renewables toward fossil fuels.
The investor got involved after BP’s share price began to significantly lag behind that of competitors Shell and Chevron.
Meanwhile, the year ended with chairman Albert Manifold leading the charge to oust Murray Auchincloss from the top job.
The toppled Auchincloss will be replaced by Meg O’Neill, chief executive of Woodside Energy Group.
The former ExxonMobil executive will take the helm in April and is suspected of being favoured by investors, with her track record of championing fossil fuels suggesting she will accelerate the group’s shift away from clean energy projects.
Share price lull
Ashley Kelty, analyst at Panmure Liberum, noted the halt of the programme may suggest both O’Neill and Manifold are “keen to pause and take stock”.
He said, “The big news is the suspension of the share buyback. BP says this is to help repair the balance sheet.
“Not an unreasonable approach but would suggest Chair Bert Manifold and Ms O’Neill are keen to pause and take stock of what BP has and to allocate capital accordingly, the bloated cost base is an obvious target, but the clearing out of the Looney/Auchinloss acolytes is likely to be near-term objective.
“We would estimate that the low margin renewables strategy will be consigned to the dustbin of history with a return to focus on core O&G business.”
Analysts also noted that the dip in share price may be a “temporary hiatus” with buybacks expected to “resume in the near term”.
Vesette said: “BP looks stable rather than exciting at the moment… further progress could now hinge on whether management can offer greater strategic clarity and rebuild confidence around shareholder returns.”