BP Cuts Back on Share Buybacks Amid Financial Concerns

BP's financial challenges and commitment to low-carbon initiatives.

News Summary

BP Plc has announced a significant cut in its quarterly share buyback program, now set at $750 million as it faces plummeting cash flow and rising debt levels. The oil giant reported a 35% decrease in annual profits and a $4 billion increase in net debt, while also aiming for $2 billion in savings by 2026. Despite these challenges, BP raised its dividend by 10% and continues to invest in low-carbon initiatives, indicating a strategic shift towards bolstering cash flow and ensuring long-term sustainability.

BP Cuts Back on Share Buybacks as Financial Concerns Mount

BP Plc is making headlines as it announces a reduction to its quarterly share buyback, now set at $750 million, a figure that sits at the lower end of its target range. This update comes as the oil giant grapples with a troubling scenario: plunging cash flow and rising debt levels are stirring concerns about its financial health.

A Rocky Start in 2024

As the first of the five major oil companies to report its earnings for the first quarter, BP is clearly feeling the pressures of a weakening oil market. Perhaps most significant is the fact that its share buyback was cut by around $1 billion from the previous quarter. This signals a shift in strategy as the company eyes ways to navigate these turbulent economic waters.

In its latest earnings report, BP revealed a steep increase in net debt of nearly $4 billion. With an underlying replacement cost profit for Q1 clocking in at $1.38 billion, it unfortunately missed analyst forecasts, which had been set at $1.53 billion. These disappointing results highlight the tougher landscape BP is working within.

Annual Profits Take a Hit

Digging deeper, BP reported a staggering 35% decrease in annual profits, bringing them down to $8.9 billion. The trend is even more pronounced when looking at the fourth quarter year-on-year, where profits plummeted by 61%. In terms of operating cash flow for 2024, BP reported $27.3 billion, a figure that’s lower than one might expect in a healthy economic climate.

Savings Plans and Future Outlook

With all these financial hurdles, BP is not just sitting back. The company is aiming to achieve at least $2 billion in savings by the end of 2026 compared to its financial standing in 2023. Already, BP has made strides, realizing $0.8 billion in structural cost reductions thus far.

On a positive note, BP raised its dividend per ordinary share by 10% as a way to reward its investors, while it also returned a noteworthy $7 billion through share buybacks in recent times.

Understanding the Drop in Profits

The company’s profit decline has been attributed to various factors. These include weaker refining margins, the impact of increased turnaround activity, lower customer volumes, and rising underlying charges from other business segments. Together, these elements created a perfect storm, leading to the financial dip.

The Energy Market’s Future

In line with this trend, competitor Equinor has slashed its renewable investments from $10 billion to $5 billion, signaling a shift back towards oil and gas for growth. TotalEnergies has also hinted at similar cutbacks in low-carbon investments, proving that this is not an isolated issue for BP.

BP’s Commitment to Low-Carbon Initiatives

Despite the financial strain, BP is committing to two significant low-carbon projects in the Teesside region of the UK, focusing on carbon capture and storage solutions. These projects reached financial close in December 2024, underlining BP’s intention to remain active in the low-carbon sector.

Additionally, BP’s acquisition of Lightsource bp, finalized in October 2024, has enhanced its renewable energy portfolio across 19 global markets. Plans for a joint venture, known as JERA Nex bp, with JERA Co. is also in the pipeline, aimed at merging offshore wind businesses. This collaboration is expected to finalize by the end of Q3 2025.

Looking Forward

CEO Murray Auchincloss has indicated a strategic shift in focus to enhance cash flow and returns, emphasizing the necessity for performance improvement going forward. More details about BP’s roadmap for the future will be unveiled at the Capital Markets Update scheduled for February 26, 2025.

While BP faces significant challenges ahead, their commitment to maintaining a presence in both traditional and renewable energy sectors could play a pivotal role in their long-term success.