Oil and gas behemoth BP has pledged to "fundamentally reset" its strategy and enhance its performance following a profit plunge last year.
The group announced a nearly 50% drop in profit for the fourth quarter this morning, due to a slump in profit at its refining division, as reported by .
Overall, the company reported a loss of $2bn (£1.6bn) for the fourth quarter, compared to a profit of $0.2bn during the same period last year.
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Underlying replacement cost profit – which accounts for the cost of replacing sold inventory, excluding inventory holding gains/losses – for the quarter dropped from $2.3bn in the third quarter of 2024 to $1.2bn.
During the same period last year, the group made $3bn. The company stated that operating cash flow for the quarter was $7.4bn, approximately $0.7bn higher for the quarter, and it concluded the year with a net debt of $23bn.
Based on these results, which fell significantly short of expectations, BP said it would reassess its plans for share buybacks in 2025. However, the company maintained its guidance for shareholder returns in the near term.
Alongside the figures, the company announced a new share buyback of $1.75bn and said it would maintain its dividend for the quarter.
Murray Auchincloss, CEO of BP, commented: "In 2024 we laid the foundations for growth. We have been reshaping our portfolio – sanctioning new major projects, and focusing our low-carbon investment – and we have made strong progress in reducing costs."
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"Building on the actions taken in the last 12 months, we now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns. It will be a new direction for BP and we look forward to sharing it at our capital markets update on 26 February."
BP’s earnings take a hit
The biggest challenge for BP last year was its refining business.
The margin it made on each barrel of oil refined dropped to $17.70 from an average of $25.80 in 2023. Consequently, its refining and trading businesses swung from an underlying pre-tax profit of $3.8bn in 2023 to a pre-tax loss of $67m for the entire year.
To try and control falling earnings, the group has put its Gelsenkirchen refinery in Germany on the market.
Richard Hunter, Head of Markets at interactive investor, remarked: "Weaker refining margins and lower volumes have been a mainstay of performance over recent quarters, despite BP’s assertion of a "cash balance point" of just $40 per barrel, which would normally imply a comfortable run at current levels.
However, Hunter added: "At the headline level, the group achieved a profit for the year of $381m, which pales into insignificance compared to last year’s $15.2bn."
"Net debt has risen from $20.9bn to $23bn, despite the benefits of divestments totalling $2.8bn, while the lower profit also impacts operating cash flow, which fell to $27.3bn from $32bn."
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"BP is aiming to mitigate some of this pressure, and cost savings of $800m for the year go some way towards an ambitious $2bn target by 2026."
Under pressure to deliver
Over the recent weekend, revelations surfaced that Elliott Investment Management had acquired a stake in BP. Following these revelations, BP's stock enjoyed a seven percent lift on Monday, with investors reacting positively to the possibility of imminent changes.
Elliott’s investment size remains under wraps, but its move has sparked widespread speculation about potential major changes at BP, encompassing strategy, leadership, and its board composition.
In light of Elliott unveiling its stake, Jefferies analysts commented: "Given Elliott’s track record, we believe its involvement could lead to board changes, portfolio rationalisation (with a focus on exiting low carbon assets and certain retail regions), and capital expenditure prioritisation on upstream projects."
Investors appear to have swayed BP to shift away from the game plan established by former CEO Bernard Looney, which leaned towards phasing out oil production in favor of renewable energy ventures.
At the helm with Auchincloss, there’s already been a cutback on eco-friendly initiatives, exemplified in December when BP announced its intention to form a $5.8bn offshore wind segment joint venture with Jera, Japan’s most substantial power utility.