BP has announced its ‘reset’, refocusing on oil and gas while reallocating capital and cutting costs to enhance shareholder returns. This approach has led to a short-term decline in the stock price, although the shareholder presentation is set for later today.
Key elements include reducing capex by $1-3 billion, with an estimated $15 billion in total spending this year. Investment in net zero projects has been cut to $1.5-2 billion from $5 billion previously.
The company aims to reduce costs by $4-5 billion, potentially leading to job cuts in non-oil sectors. BP plans to divest $20 billion over the next two years to lower net debt by $14-18 billion by 2027.
The guidance outlines a distribution of 30-40% of operating cash flow to shareholders over time, despite slashing the current share buyback plan from $1.75 billion in Q4 to $0.75-1 billion in Q1. Meeting free cash flow goals requires Brent crude prices of $70 per barrel, currently just above $73.
BP’s timing raises concerns as oil prices begin to decline. Elliott Management, an activist investor holding a near 5% stake, may influence future decisions based on the effectiveness of the reset. The market has reacted cautiously, suggesting challenges in boosting share prices.
Meanwhile, US Federal Reserve rate cut expectations have shifted, with markets predicting rates to end the year at 3.78%. Expectations have adjusted to forecast two rate cuts this year, impacting the strength of the dollar, which has underperformed against other currencies.
BP’s strategy shift has been met with some scepticism. The drive to reallocate capital more towards oil and gas, while trimming down spending elsewhere, has unsettled investors. Cutting capital expenditures by $1-3 billion and reducing investments in cleaner energy sources will affect long-term ambitions, but for now, the focus is squarely on increasing returns. Some of that reallocation comes in the form of workforce reductions in areas outside core operations, and the sale of $20 billion in assets should help bring debt down considerably by 2027.
A lower-than-expected share buyback in the first quarter signals caution. The plan to distribute 30-40% of operational cash flow over time sounds appealing, but execution will be scrutinised if crude prices don’t hold firm. At present, Brent sits slightly above $73 per barrel, making the $70 target for sustaining free cash flow achievable—for now.
With oil coming off recent highs, the timing is far from ideal. Investors have hesitated, evident in the share price response. Elliott is watching closely, and its influence could shape how things unfold. If the current measures don’t restore confidence, pressure to refine the approach will grow.
Away from BP, shifting expectations around US Federal Reserve policy are stirring changes elsewhere. Markets now see rates ending the year close to 3.78%, with a growing consensus around just two cuts rather than the earlier projections of faster easing. That adjustment has been enough to weigh on the dollar, which has lost ground against several other currencies.
For those trading derivatives, this mix of corporate moves and macroeconomic shifts presents a fast-moving environment. Lower US rates should eventually pressure the dollar further, affecting oil valuations in turn. If crude sees further declines, BP’s free cash flow goals could face more pressure, and shareholders may push back harder.
