BP CEO Murray Auchincloss pledged on Tuesday (Feb 11) to fundamentally reset the company’s strategy as it reported a 35 per cent fall in annual profits, missing analysts’ expectations.
The drop in profit to US$8.9 billion follows weekend reports Elliott Investment Management has built a stake in the company, intensifying demands for strategic shifts.
Auchincloss declined to comment on Elliott’s reported involvement, in a call with Reuters on Tuesday.
Elliott has also declined comment.
The oil major also posted a 61 per cent drop in fourth-quarter profits, year on year, to the weakest since the fourth quarter of 2020, when pandemic lockdowns shrank demand for oil.
Following the lower earnings, BP will also cut bonuses for its senior leaders to 45 per cent of target after the company missed some financial goals in 2024, three sources close to the company said on condition of anonymity, citing an internal memo.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The company’s 2024 adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) of US$38 billion was below its target of US$40.9 billion.
BP joins other majors that have experienced a decline in earnings throughout 2024, following record earnings in the previous two years when consumption recovered from the pandemic retreat and the disruption caused by the Ukraine war led energy prices to spike.
But BP has underperformed its peers, piling pressure on Auchincloss to deliver change.
Its share price eased 0.9 per cent to 460.85 pence by 1500 GMT.
On Monday, it had rallied strongly on expectations Elliott’s acquisition of an undisclosed stake would enforce reform, possibly including board changes.
“We now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns,” Auchincloss said in a statement on Tuesday.
“Our oil and gas business is well-positioned and performing strongly… we are focused on improving performance in refining, have stopped projects that won’t compete for capital, and are restructuring our low-carbon business to grow, but in a more capital-light way.”
On a call with analysts Auchincloss also said that BP was considering increasing US shale gas output due to higher prices and was seeing returns on gas surpassing those on oil in the basin.
BP’s strategic reset
Auchincloss has been working towards rebuilding investor confidence in the company, following the resignation of his predecessor Bernard Looney in September 2023 for failing to disclose relationships with employees.
He is expected to use the capital markets day (CMD), scheduled for February 26, to announce his new strategy.
“Investors will likely be expecting a reversal of the integrated energy company strategy, including a reduction in low-carbon spending, robust cost reduction targets and increased hydrocarbon investment that could lead to production growth,” Morningstar analyst Allen Good said.
Delivering shareholder returns, the company extended its US$1.75 billion buyback target to first-quarter.
At the same time, BP said it plans to review financial guidance, including 2025 share buyback and capital expenditure expectations.
RBC Capital Markets analyst Biraj Borkhataria said the brokerage expected a lower buyback rate beyond the first quarter.
Weak earnings and outlook
The company’s quarterly earnings were dragged down by weaker realised refining margins. Its fourth-quarter average refining marker margin stood at US$13.1 per barrel, down from last year’s US$18.5 per barrel.
For the current quarter, BP expects margins to remain low and a lower level of refinery turnaround activity compared with the fourth-quarter.
BP’s underlying replacement cost profit, the company’s definition of net income, dropped to US$1.17 billion in the three months ended December 31, from last year’s US$2.99 billion.
Analysts had projected a fourth-quarter profit of US$1.26 billion, based on a company survey, and US$1.20 billion according to data compiled by LSEG.
For full-year 2024, analysts expected a profit of US$9.21 billion, according to LSEG data. REUTERS
