British oil major BP (BP) reported a sharp decline in fourth-quarter profits due to weaker refining margins but announced a $1.75 billion share buyback and plans to “fundamentally reset” its strategy.
Q4 Financial Performance
- Underlying replacement cost profit (RC profit): $1.169 billion (-48% YoY)
- Analyst expectation: $1.2 billion (LSEG poll)
- Capital expenditure: $3.7 billion (-21% YoY)
- Net debt: $23 billion (+10% YoY)
- Dividend per share: $0.08
BP attributed the decline in profits to weaker refining margins, higher turnaround activity, and lower fuel margins. The company’s gas & low-carbon energy division posted a 15% annual drop in RC profit to $1.84 billion, despite improving from $1 billion in the previous quarter. Meanwhile, oil production and operations surged 37% year-over-year.
BP’s Outlook and Strategy Reset
In Q1 guidance, BP expects lower upstream production due to divestments in Egypt and Trinidad, alongside continued pressure on refining and fuel margins. The company also noted the impact of a strong U.S. dollar on earnings.
CEO Murray Auchincloss announced a strategic overhaul, aiming to improve cash flow and shareholder returns.
“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.”
Market Reaction and Investor Sentiment
- BP shares: Down 0.13% post-earnings
- Shell shares: Up 6% over the last year
- BP stock: Down 9% YoY
BP has underperformed its peers, with speculation growing that the company could be a takeover target, although its £74 billion market cap presents a challenge for potential buyers. The announcement that activist investor Elliott Management has taken a stake in BP has fueled expectations of increased pressure for strategic shifts.
Conclusion
BP faces challenges from weaker refining margins and industry headwinds, but its commitment to cost-cutting, buybacks, and a strategy overhaul suggest a renewed focus on shareholder value. Investors remain cautious, awaiting further details on BP’s transformation.
