26 February 2025
If you are covering BP’s strategy reset, please find below a comment from Maurizio Carulli, global energy and materials analyst at Quilter Cheviot:
“BP’s strategy reset is encouraging and an important first step toward a much needed refocusing of the company after a challenging year. In particular, the new distribution policy of 30-40% of operating cash-flow is the right choice and helps to avoid over-distributing. As part of this, the expectation of free cash flow annual growth of 20% for the next three years is also a clear positive.
“Overall, the group is reducing capital expenditure, with a very significant cut in energy transition related projects. Given market dynamics and the performance of the business in recent years, this is the correct action and recognises that other operators might be more competitive in this segment.
“Furthermore, $20bn of divestments by the end of 2027 is being targeted, and will possibly include Castrol and the solar business Lightsource. These proceeds should then allow BP to reduce its debt burden and refocus the priorities of the group. The company could go further though to help assuage investors’ fears. Continued investments in hydrogen and carbon capture, albeit guided as limited, should be reconsidered for possible cessation given the challenges in achieving attractive returns in these areas.
“The big winner in all of this within BP is the upstream division, where it will see an increased in capex and ten new projects for oil and gas, however this should be strictly focused on hydrocarbon assets with both high returns and low carbon intensity. BP guidance of returns of at least 15% in upstream going forward appears reassuring.
“Ultimately, this is a big change in direction from BP as it looks to shift the negative momentum of the past. It is going to be vital, for investors, that more detail on each component of its strategy reset is frequently communicated while it is being implemented, so that progress and success can be properly judged.”
