BP PLC (LSE:BP.) first-quarter update on Tuesday landed awkwardly, with cash flow well below expectations.
Yet while the miss disappointed the market, UBS sees reasons for private investors to remain steady. Operational discipline is improving, asset sales are gaining traction, and capital flexibility offers some protection in a weaker commodity environment.
Cash flow miss overshadows operational gains
The core issue was cash generation. Operating cash flow (excluding working capital) missed consensus by 12% and came in 7% below UBS’s own forecast. This was despite record upstream availability, suggesting the drag came from elsewhere, specifically, a weak quarter in gas trading.
Management blamed regulatory changes in Europe but said performance should normalise from the second quarter as new LNG cargoes arrive from Venture Global and Tortue.
Cost savings and flexibility show discipline
Cost control is improving. BP delivered $500 million in structural savings in the quarter, achieved mainly by reducing external contractors and simplifying operations within its Customer & Products and Corporate divisions. Around 3,000 contractor roles were cut.
Capital expenditure guidance was lowered by $500 million to $14.5 billion, and BP said actual spend may come in below $14 billion. UBS notes the company still holds an additional $2.5 billion of capex flexibility if oil prices fall further.
Asset sales gaining pace
One of the more promising elements of the results was progress on disposals. BP raised its 2025 disposal guidance to $3–4 billion from $3 billion. Management cited strong buyer appetite, particularly from investors seeking yield as interest rates soften.
UBS highlights that Castrol and Lightsource BP are now expected to be formally marketed for sale, starting with Lightsource in the second quarter.
Earnings trimmed, price target unchanged
UBS cut its 2025 and 2026 earnings per share forecasts by 5%, driven by lower assumptions for gas trading and higher expected minority charges. Its 400p price target remains unchanged, implying around 13% upside from Tuesday’s closing price of 353p.
The target is based on a $75 per barrel long-run oil price and a blended valuation approach.
The dividend and hybrid bond strategy remain intact, with $500 million in hybrids issued during the quarter to support future partnerships and $2.5 billion callable later this year.
Tariff risks minimal
BP reassured investors that tariffs are not having a material impact. Its US refinery at Whiting processes Canadian crude, which is exempt.
Its shale business sources steel domestically, while its Singapore-based Kaskida floating production unit qualifies as a finished product. There is some exposure in the Gulf of Mexico due to specialty steel, but the financial effect is described as minimal.
Outlook and production strategy
BP confirmed its 2030 production target in the US Lower 48 of 650,000 barrels of oil equivalent per day, with $2.5 billion of capex budgeted for 2025.
The company has flexibility to shift drilling between oil and gas depending on market conditions. Most of its 2025 gas production is hedged at around $4 per million BTU.
Refining, which struggled due to a gasoline surplus and weak diesel margins in Europe, is expected to improve in the second quarter as driving season kicks in. Management is targeting a $2 per barrel improvement in underlying refining profitability.
In Iraq, BP’s return to Northern oilfields is progressing. UBS notes that the terms of the production-sharing agreement are now more favourable, with cash flow expected early once partners are introduced.
What next for private investors?
BP’s head of strategy, Giulia Chierchia, will step down in June. The role will now report directly to the CFO, with an emphasis on tighter integration between financial outcomes and strategic planning; a potentially positive signal for shareholder discipline.
For the 200,000 UK private investors who hold BP shares, the picture is nuanced. The shares remain more sensitive to oil price movements than most peers, and the buyback outlook could weaken if cash flow doesn’t recover.
But with capex discipline, improving operations, and clear progress on disposals, UBS believes there’s still value to be had - if BP can steady the ship in Q2.