After BP PLC (LSE:BP.) named Meg O’Neill as its chief executive, the first time an external candidate has taken the helm in the company’s 115-year history, analysts at UBS said the appointment looked designed to accelerate the change in strategic direction announced earlier this year, particularly around culture and returns-focused growth.
Murray Auchincloss, who will remain in an advisory role until the end of 2026, was reported to have clashed repeatedly with chair Albert Manifold over strategy before his departure.
Clues to what is expected from O’Neill, who joins from Australia’s Woodside Energy and has two decades of experience at ExxonMobil, were apparent in the quotes from Manifold in the statement. He highlighted O'Neill's "proven track record of driving transformation, growth, and disciplined capital allocation" as well as "relentless focus on business improvement and financial discipline".
UBS said an external perspective is "likely to facilitate a faster move, especially as it relates to culture" as the company aims to focus more on returns and production growth, especially as she will be working with ex-CRH boss Manifold and two other high-profile board additions in ex-Devon CEO David Hager and ex-Shell CFO Simon Henry.
UBS said the focus is expected to remain on executing BP’s existing 12-quarter plan to the end of 2027, where a key focus is cutting the cost base, as BP has “the highest operating cost intensity of the sector”.
The balance sheet is another issue as BP has the largest proportion of liabilities versus peers, which has "meant that despite having a relatively low oil price sensitivity as a proportion of CFFO, the shares have had one of the highest beta to oil prices in the sector".
Out of the $20 billion disposal target, around $5 billion is already announced. UBS thinks it is important that BP gets a good price and avoids selling assets "simply to hit a net debt target".
UBS also pointed to opportunities in "transacting to unlock hidden value", with Castrol the most high-profile potential divestment with Stonepeak reportedly in advanced discussions to purchase at a valuation above $8 billion, while other potentially significant transactions could come from a sale of Lightsource and a farm-out of upstream positions in the Paleogene, Brazil and Northern Iraq.
For the next two years, UBS sees the key growth opportunities as coming from US production growth, improved refinery availability with a better contribution from retail, improved LNG earnings as additional third-party and equity volumes are absorbed, and the ramp-up of biogas assets in the US.
While the company has announced 12 discoveries, headed by the potentially very large Bumerangue discovery in Brazil, the analysts said these all need to be derisked in a timely manner.