BP reported a significant drop in fourth-quarter profit on Tuesday, citing weaker refining margins and increased costs, while also unveiling a US$1.75 billion share buyback and a commitment to "fundamentally" reset its strategy.
The British oil major posted an underlying replacement cost profit (RC profit) - a key measure of net income - of $1.169 billion for the quarter, down 48% from $2.99 billion a year earlier and slightly below forecasts.
The company attributed the profit decline to weaker realised refining margins, higher turnaround activity costs, seasonally lower customer volumes, and increased corporate charges.
BP’s net debt rose to nearly $23 billion in the fourth quarter, marking a 10% year-on-year increase, while capital expenditure (capex) fell to $3.7 billion from $4.7 billion in the same period in 2024.
Despite financial pressures, BP confirmed a fourth-quarter share buyback of $1.75 billion, alongside a dividend of $0.08 per share. Analysts had questioned whether the company would slow down its repurchase programme to stabilise its balance sheet.
BP reported a 15% year-on-year decline in RC profit from its gas and low-carbon energy segment, which generated $1.84 billion, although this marked a recovery from $1 billion in the previous quarter.
Oil production and operations surged 37% year-on-year, while the company flagged a "weak" contribution from its oil trading division due to subdued refining margins.
Looking ahead, BP anticipates lower upstream production in Q1 due to divestments in Egypt and Trinidad. The company also warned of continued sensitivity to refining and fuel margins, alongside the impact of a strong U.S. dollar on earnings.
In a statement accompanying the results, CEO Murray Auchincloss outlined plans to reshape BP’s strategy and drive operational improvements.
"We now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns. It will be a new direction for BP," he said.
The oil sector has faced headwinds as crude prices declined following their surge in 2022 after Russia’s invasion of Ukraine. BP has lagged behind its peers, with shares down roughly 9% over the past year, compared to a 6% rise for Shell.
BP gained traction on Monday after reports surfaced that activist investor Elliott Management had acquired a stake in the company, fuelling speculation that the hedge fund may push for strategic shifts in BP’s core oil and gas operations.
Some analysts have also speculated that BP could become a takeover target, though its £74.46 billion (A$147.15 billion) market capitalisation presents a significant barrier to potential buyers.
BP has undertaken major restructuring, including leadership changes and cost-cutting measures. The company aims to deliver at least $2 billion in savings by 2026, with plans to cut 4,700 jobs.
Additionally, BP recently announced it is seeking buyers for its Ruhr Oel GmbH refinery assets in Germany.
Amid concerns about the clarity of its long-term strategy, BP is set to provide a key strategic update on 26 February.
At the time of writing, BP (LSE: BP) stock was trading at £462.25, easing 0.6% from Monday's close of £465.15. The stock reached a day low of £456 and a day high of £469.85. BP's market cap stands at £74.46 billion.
