BP Doubles Down on Oil and Gas, Cuts Renewable Investments in Strategy Reset

BP, the British multinational oil and gas company, has announced a significant shift in its strategic direction, focusing on increasing oil and gas production while reducing investment in renewable energy. This move, aimed at boosting earnings and shareholder returns, comes as the company faces pressure from activist investor Elliott Investment Management, which has taken a stake in BP. The strategic reset, to be fully detailed at a Capital Markets Update on February 26, is expected to drive improved performance and grow cash flow and returns.

BP's new strategy involves several key components:

1. Increased Oil and Gas Investment: BP plans to increase annual oil and gas spending to around $10 billion, focusing on high-returning projects and strengthening its portfolio. This move aims to grow production to 2.3-2.5 million barrels of oil equivalent per day (boe/d) by 2030.
2. Focusing Downstream: The company will reshape its downstream portfolio to drive growth, high-grading and focusing on advantaged and integrated positions. BP has also announced a strategic review of its lubricants business, Castrol, and plans to divest $20 billion in assets by 2027.
3. Disciplined Investment in the Transition: BP will maintain a selective approach to investing in the energy transition, focusing on innovative capital-light platforms and strategic partnerships in renewables. The company aims to invest $1.5-2 billion annually in transition businesses, a significant reduction from its previous guidance.
4. Financial Frame and Shareholder Returns: BP targets reducing annual capital expenditure to $13-15 billion by 2027, significantly increasing structural cost reductions to $4-5 billion by the end of 2027, and reducing net debt to a range of $14-18 billion by the end of 2027. The company also plans to maintain a resilient dividend, with guidance of 30-40% of operating cash flow to shareholders, and expects to announce share buybacks at the time of quarterly results.



BP's decision to refocus on oil and gas production and reduce investment in renewable energy carries potential environmental and reputational risks. The company must address these concerns to maintain its long-term sustainability and social responsibility goals. By implementing mitigation strategies, such as setting clear emissions reduction targets, investing in carbon capture and storage technologies, and maintaining transparency in its energy transition commitments, BP can help minimize these risks.

BP's strategic shift is expected to improve its financial performance and shareholder value. The company aims to grow adjusted free cash flow by more than 20% annually to 2027 and achieve returns on average capital employed of more than 16% by the same year. By executing its plans effectively and navigating potential challenges, BP can deliver on its promises to investors and maintain its position as a leading energy company.

In conclusion, BP's strategic reset, focusing on increased oil and gas production and reduced investment in renewable energy, is a significant shift in the company's direction. While this move carries potential environmental and reputational risks, BP can mitigate these concerns by implementing appropriate mitigation strategies. The strategic reset is expected to improve BP's financial performance and shareholder value, provided the company executes its plans effectively and navigates potential challenges.