Around 200,000 private investors hold stock in BP. Here we take a look at the highly anticipated Q1 numbers and what they mean for the forgotten minority.
It was not the kind of opening act shareholders were hoping for. BP PLC (LSE:BP.) kicked off the oil majors’ reporting season with a limp set of first-quarter results that left investors with more questions than comfort.
Around £1.9 billion was wiped from the value of the stuttering oil major on Tuesday, and the shares are down 14% this year.
Shell, by comparison, has dropped just 4%. TotalEnergies is in positive territory.
So what is going on behind the scenes at one of Britain’s most widely held companies? And what should private investors make of the numbers?
Let’s break it down.
The good
Despite the messy headlines, there were some green shoots. Chief executive Murray Auchincloss pointed to what he described as the most efficient oil and gas operations in the company’s history.
Production was strong, and BP made six successful exploration finds in a row, a rarity in an industry where drilling can often be an expensive gamble.
Operational performance is humming, and that matters. When the core business is running smoothly, it helps underpin cash flow, pays for dividends and, in theory, supports share buybacks. On that front, BP announced another $750 million of repurchases, albeit at the lower end of expectations.
There were also clear signs that BP is taking cost control seriously. It cut 3,000 contractor roles in the quarter and is reviewing another 3,400.
The early-stage use of automation and data tools to manage this process hints at a more modern, less bloated operation. Capital spending has also been trimmed by $500 million.
The bad
Profits were the big letdown. Adjusted earnings fell by nearly half to $1.38 billion. That is not just a drop, it is the third miss in five quarters. The shortfall came largely from BP’s trading division, particularly gas, which has been a strong earner in recent years but ran into market issues this time.
That matters because investors rely on trading to soften the blows when commodity prices dip. When both oil prices and trading income fall, as they did this quarter, there is no cushion.
Cash flow is now under scrutiny. Net debt rose by $4 billion to $27 billion, and while the company remains confident of hitting its target of reducing debt to a range of $14 billion to $18 billion by 2027, getting there will require discipline and, likely, asset sales.
BP is targeting disposals of $3 billion to $4 billion this year. That is achievable, but not without risk.
The company’s own assumptions are also being tested. Its current strategy is built around an average oil price of $71.50 a barrel. Brent crude was trading closer to $65 on results day. The lower that price drifts, the harder it becomes for BP to meet its internal targets.
The ugly
If the profit miss was disappointing and the debt pile unsettling, the strategic confusion is what really unnerves investors.
The company is in the middle of a messy pivot back to oil and gas, having spent the past few years trying to convince markets of its green energy ambitions. That plan has now been rolled back. Spending on renewables is being cut.
The architect of the old strategy, Giulia Chierchia, is leaving. Her role will not be replaced.
The optics are poor. BP had tried to position itself as a responsible energy company preparing for a lower-carbon world. Now it looks like a traditional oil business again; one that briefly flirted with renewables but has decided the returns just are not there.
There may be logic in that shift, especially if oil prices stay weak and green returns remain uncertain. But for investors who bought into the transition story, it feels like a rug has been pulled.
And the Elliott postscript
As if things were not complicated enough, activist investor Elliott Management is circling.
It wants deeper cuts, a narrower focus, and faster progress towards a $20 billion free cash flow target by 2027. It also wants BP to scrap its corporate venture arm and shut several strategy-related teams.
Some investors will cheer the intervention. Elliott’s involvement often leads to leaner, more profitable businesses in the short term. But others may worry that cutting too deep, too fast could leave BP poorly positioned for the longer-term energy transition.
For now, private investors will have to watch and wait. The share price says it all: BP still has plenty to prove.