Strategy head departs, causing BP's profit to slide by 48%

Strategy head departs, causing BP's profit to slide by 48%

HOT OFF THE PRESS: BP TAKES A HARD HIT, STRATEGY SHUFFLE IN SIGHT

London's, BP, officials painted a grim picture on Tuesday, reporting a staggering 48% drop in net earnings to a measly $1.4 billion. The downfall? Weaker gas trading and refining results. As they attempt to bolster investor confidence, the company's strategy guru is stepping down, and asset sales worth $20 billion through 2027 are on the horizon.

CEO Murray Auchincloss is under the pump to boost profitability and slash costs, not an easy task given our current turbulent climate. The British energy giant, known for its robust resilience, is ready to flex its financial muscles, ready to let go of $20 billion in assets over the next five years. Spending and share buybacks will take a dive too.

BP's got ambitions to cut hydrocarbon production and beef up its low-carbon business, but strategy and sustainability chief Giulia Chierchia, the driving force behind those plans, is stepping down on June 1. U.S. fund manager Elliott Investment Management is reportedly urging change, seeking higher free cash flow through deeper spending and cost cuts.

BP's share value has been lagging behind peers since Bernard Looney, the company's previous CEO, steered it into greener pastures. Since Auchincloss orchestrated his strategy revamp in February, BP's shares have plummeted 20%, while competitors Shell and Exxon have sustained only relatively minor losses.

Overhaul in Progress

BP's gas and low-carbon unit saw a steep 40% decline in profits, with weaker trading and lower production after asset sales taking their toll. The customers and products business took a 47% hit too. The company anticipates conducting a heavy refinery maintenance program in the upcoming quarter, which is likely to lower output. The industry-wide fall in refining profitability weighed on BP's refining margins, averaging only $15.20 a barrel in Q1, down from $20.60 last year.

BP plans to buy back $750 million in shares for the quarter, which is at the low end of their guided range. An about-face from hefty buybacks totalling $7.1 billion in 2021. Kate Thomson, the finance chief, coyly stated that there would be no guidance on the size of future buybacks.

Due to increased asset sale expectations, BP is upping its outlook for this year to $3-$4 billion from $3 billion. The company has also downsized its spending outlook for 2023 by $500 million to $14.5 billion, sticking to its $13-$15 billion target for next year and 2027.

Global benchmark Brent crude prices averaged around $75 a barrel during the January-March quarter, taking a nosedive from around $87 a year earlier. A recent turmoil in oil prices due to Trump's tariff announcements has brought Brent to around $66 a barrel. Aufincloss warned that with sustainably lower prices, deflation would become evident across their capital plans, and they have around $2.5 billion of additional flexibility if required.

The (Dis)Establishment Shuffle

Elliott has upped its stake in BP to just over 5%, placing them between top shareholders BlackRock and Vanguard, as per LSEG data. The shake-up in the boardroom is not done, and energy companies across the globe are gearing up for a challenging yet prosperous journey in the energy transition era.

1. BP, despite a 48% decrease in net earnings, is determined to boost profitability and slash costs, aiming to sell assets worth $20 billion over the next five years.
2. Asset sales, spending, and share buybacks are expected to decrease in BP's strategy, as they focus on cutting hydrocarbon production and expanding their low-carbon business.
3. The energy industry is undergoing a shift, with BP's strategy guru stepping down and US fund manager Elliott Investment Management urging change for higher free cash flow.
4. BP's share value has struggled to keep pace with competitors since the company's shift towards greener operations, and most recently, BP's shares have plummeted 20%.
5. BP plans to conduct a heavy refinery maintenance program, which is expected to lower output, while industry-wide refining profitability has also been affected, lowering BP's refining margins.
6. Global benchmark Brent crude prices have fallen from around $87 a barrel last year to around $66 a barrel, placing pressure on BP's capital plans and forcing the company to find additional flexibility of around $2.5 billion.
7. Elliott Investment Management, now a significant shareholder in BP, is not the only company experiencing a shake-up, as energy companies worldwide prepare for the challenging yet prosperous journey of the energy transition era.

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