KEY POINTS
- BP’s annual profits fell by 35 percent, missing expectations.
- CEO Murray Auchincloss pledges a strategic reset and cost cuts.
- Weak refining margins and low earnings put pressure on BP’s future.
BP is facing a tough financial year, reporting a 35 percent drop in annual profits to $8.9 billion, missing analysts’ expectations.
The decline comes as the company struggles with weaker refining margins and lower earnings, leading to a 61 percent drop in fourth-quarter profits, its lowest since 2020.
Adding to the pressure, Elliott Investment Management has built a stake in BP, increasing calls for strategy changes and potential board restructuring.
While BP declined to comment on Elliott’s involvement, the company acknowledged the need for a significant shift in direction.
BP adjusted its bonus system by scaling down senior leader bonuses to 45 percent of the target due to missed financial targets.
The company’s adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) for 2024 stood at $38 billion, falling short of the $40.9 billion target.
CEO pledges strategic reset amid challenges
BP CEO Murray Auchincloss has promised a fundamental reset of the company’s strategy to boost cash flow and returns.
He emphasized that BP’s oil and gas operations maintain robustness yet the company must improve refining performance, restructure low-carbon operations, and eliminate capital-inefficient projects.
The company is examining the possibility of growing its U.S. shale gas production because gas prices are higher and generate better returns than oil. BP plans to cut costs by a minimum of $2 billion by 2026 while investors expect this initiative will boost profit margins.
The new strategic direction of BP will be discussed at the Capital Markets Day (CMD) session set for February 26.
According to Reuters, analysts anticipate a reduction in low-carbon spending, increased investment in hydrocarbons, and stronger cost-cutting measures to improve shareholder confidence.
Weak refining margins impact BP’s outlook
Weak refining margins led to an earnings decline at BP, as fourth-quarter profits reached $13.1 per barrel after dropping from $18.5 per barrel the previous year.
The business expects refinery operations to decline further while margins will remain low in the next quarter.
BP’s preferred financial performance metric, underlying replacement cost profit, dropped to $1.17 billion in Q4 from $2.99 billion in the prior year. Analysts had projected $1.26 billion, making this another miss for the company.
Despite the financial setbacks, BP extended its $1.75 billion share buyback program into the first quarter, but analysts believe buybacks could decline beyond that period.
Investors track BP as the company prepares for a strategic transition, to determine if it will improve performance below industry competitors.
