Shares in BP PLC (LSE:BP.) dropped 2% on Fridy after UBS downgraded its rating on the oil major from 'buy' to 'neutral', citing increased financial uncertainty that may hinder the company’s efforts to rebuild investor confidence.
The move follows a downbeat trading update from BP, in which the group flagged weaker-than-expected performance in its gas trading division and a sharp rise in net debt.
The company said natural gas production fell in the first quarter, due in part to previously announced asset sales in Egypt and Trinidad. Its gas and low-carbon energy division, which includes renewable investments and carbon capture, is expected to post lacklustre trading results despite broadly stable prices.
Oil output was slightly higher, but realised prices remained flat, with BP noting the delayed impact of global benchmarks on output from regions such as the Gulf of Mexico and the UAE.
Its downstream business delivered a mixed picture. Retail and logistics performed well, but this was offset by seasonally weaker fuel demand. Refining margins improved, adding up to $300 million in earnings, while oil trading - a key profit driver in recent quarters - produced only average returns.
BP warned that net debt had risen by $4 billion, mainly due to seasonal spending and bonus payments. A higher tax rate of around 50% was also flagged, reflecting where profits were booked. First-quarter results will be published on 7 May.
Activist investor Elliott Advisors has been circling BP for months, building what is thought to be a 5% stake as it presses for a shake-up at the oil major.
The US hedge fund has been highly critical of BP's strategy and has privately argued that the group should consider breaking itself up to unlock value for shareholders.
Elliott has also pushed for BP to scale back its energy transition plans and refocus on higher-margin oil and gas production.
The latest trading update, combined with a share price that has badly lagged rivals like Shell, is likely to intensify pressure on chief executive Murray Auchincloss to deliver a clearer plan to revive performance and restore investor confidence.
The stock was off 7.66p at 333.94p. Year-to-date, it is off 17%.