BP Chair to Review Business as Pressure Mounts on Turnaround
(Bloomberg) -- BP Plc said its new chairman will conduct a review of the entire portfolio and the company will seek to cut costs beyond current targets as it works to reverse years of poor performance.
The UK oil major announced the review Tuesday as it posted earnings that topped estimates on the back of strong trading results and robust cash flow. That gives the company a little breathing room as it faces pressure to deliver on a turnaround plan, including from activist investor Elliott Investment Management, which has called for sweeping changes and deeper cost cuts.
BP reported a $900 million reduction in structural costs in the first half. It also said it’s completed or announced at least $3 billion of divestments this year as it works to bring down debt and refocus on the core oil and gas business after a failed net zero strategy.
Chief Executive Officer Murray Auchincloss’s corporate reboot, announced in February, included targets for reducing costs and capital spending and $20 billion of asset sales by the end of 2027. The plan received a lukewarm response from investors, and the CEO said Tuesday he’s initiating a further spending review.
“We want to drive cost efficiency as much as we possibly can,” Auchincloss said in a Bloomberg Television interview. “We’ve had a good start, but we’re two quarters into 12; a lot more to do.”
Separately, incoming Chairman Albert Manifold “will conduct a thorough review of our portfolio of businesses to ensure we are maximizing shareholder value moving forward – allocating capital effectively,” Auchincloss said in a statement. “BP can and will do better for its investors.”
The company posted second-quarter adjusted net income of $2.35 billion, exceeding the average analyst estimate of $1.76 billion.
That gave a lift to its shares, which have rallied in recent months as oil prices recovered from a four-year low in early April. The company has outperformed rivals since then, but is still down about 14% in the past two years.
Shareholder Returns
Net debt dropped by about $1 billion to $26 billion at the end of June. BP maintained quarterly share buybacks at $750 million, while the dividend was raised by 4%.
“BP’s increased attention on the basics — operating assets well, reducing costs — seems to be bearing fruit,” Kim Fustier, an analyst at HSBC Bank Plc, said in a note. “The reduction in net debt is even better to see as it comes from underlying cash flow rather than working-capital moves or divestment proceeds.”
QuickTake Explainer: What Went Wrong for BP? Why the Oil Major Hit Reset
Manifold, previously CEO of building-materials company CRH Plc, officially starts Sept. 1, and incumbent Chairman Helge Lund will depart a month later. Elliott has called on Manifold to make urgent improvements to the firm’s cost base and capital allocation, saying the turnaround plan is too weak.
Divestments are viewed as a key element of the overhaul. BP has made progress on a series of small disposals, and said it still expects to raise as much as $4 billion this year. However, it’s yet to offload lubricants unit Castrol, which underpins the asset-sale plan.
Several big-name energy companies and financial suitors have dropped out of bidding for Castrol and valuation expectations have slipped, people with knowledge of the matter said last month.
Addressing what the new review may mean for the potential Castrol divestment, RBC Europe analyst Biraj Borkhataria said it may be deferred to allow for the new chairman to take a closer look at capital allocation.
Brazil Discovery
BP has announced a flurry of oil and gas project startups and discoveries around the world as it seeks to show upstream growth. On Monday, the company said it made its largest find in a quarter-century in waters off Brazil, and had brought a Gulf of Mexico oil expansion project online.
Production of oil, condensates and natural gas liquids grew quarter-on-quarter, Auchincloss said in a telephone interview on Tuesday. However, BP forecasts slightly lower overall output in the third quarter and sees full-year volumes lower than in 2024. It plans to spend about $10 billion a year on its fossil-fuel business through 2027.
BP was the last of the five Big Oil majors to report earnings, with Shell Plc, Exxon Mobil Corp. and Chevron Corp. all exceeding expectations, while TotalEnergies SE missed estimates. On Tuesday, Saudi Aramco reported another decline in profit as lower oil prices outweighed the impact of higher production.
The second quarter was marked by oil-market volatility, with prices buffeted by US President Donald Trump’s trade war, shifting OPEC+ policy and Israel’s attacks on Iran. Brent slid about 9% in the period and is now hovering just below $70 a barrel — the level BP uses to model financial targets.
The company has been the subject of mounting takeover speculation over the past year as its shares underperformed. Shell said in June it had no intention of making an offer for its rival.
(Updates with analyst comment in 10th paragraph.)
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