BP Reports Weak Q4 Earnings Amid Strategic Reset and Activist Pressure

BP reported disappointing fourth-quarter results, with adjusted net income of $1.17 billion, down 61 percent year-over-year, and below consensus estimates of $1.3 billion. Adjusted earnings per share came in at $0.07, missing expectations of $0.08. Revenue also saw a significant drop, reflecting weaker refining margins, lower customer demand, and increased operational costs.

Despite these challenges, BP posted adjusted EBIT of $4.03 billion, which beat expectations of $3.88 billion, and stronger-than-expected oil production and gas earnings. The oil production and operations segment posted a profit before interest and taxes of $2.92 billion, exceeding the estimated $2.53 billion, while the gas and low-carbon segment saw a 12 percent year-over-year increase in profit, coming in at $1.99 billion compared to the expected $1.74 billion.

BP’s capital expenditures came in at $3.89 billion, down 8.3 percent year-over-year, reflecting the company’s push to optimize spending amid lower energy prices. Operating cash flow also declined 21 percent year-over-year to $7.43 billion, though it remained above estimates of $6.13 billion.

Despite weaker financials, BP announced a $1.75 billion share buyback, signaling confidence in long-term cash flow stability. However, analysts had speculated that BP might need to scale back repurchases to protect its balance sheet, and further reductions in buybacks remain a possibility.

Key Drivers and Industry Context

BP’s disappointing results come at a time of lower oil and refining margins, which have pressured earnings for energy majors. The sharp drop in profit is due in part to weaker refining margins, seasonally lower customer volumes, and higher costs linked to plant turnarounds.

In contrast, BP’s gas business outperformed expectations, driven by strong demand and higher realized prices. The company noted that returns on gas in U.S. shale basins are now surpassing those of oil, prompting discussions about expanding its shale gas production in response to more favorable market dynamics.

BP has also seen reduced momentum in its biofuels business in Europe, reflecting shifting regulatory and demand dynamics in the region. While biofuels remain part of BP’s broader energy transition strategy, the company may need to recalibrate its approach given these challenges.

Elliott Management’s Stake and Strategic Shifts

A major development for BP is the activist investor Elliott Management taking a stake in the company, which has fueled speculation that the hedge fund will push for a strategic shift to unlock value. The size of Elliott’s stake has not been disclosed, but the firm has a reputation for advocating aggressive changes, including executive shake-ups, asset divestitures, and refocusing corporate strategy to boost shareholder returns.

BP has underperformed its peers, with shares down 9 percent over the past year, compared to a 6 percent gain for Shell. The company’s strategy, which has focused on transitioning away from oil and gas toward renewable energy, has been criticized for eroding shareholder value.

Elliott’s involvement suggests that investors are growing impatient with BP’s renewable energy pivot, and pressure is mounting for the company to recommit to its core oil and gas business. BP’s CEO, Murray Auchincloss, acknowledged the need for a fundamental reset, pledging to improve performance and grow cash flow and returns.

BP will provide further details on its strategic overhaul at its Capital Markets Day on February 26, where investors will look for clearer signals on whether the company will scale back its renewables push, focus more on hydrocarbons, or pursue structural changes such as asset sales or a corporate restructuring.

Operational Updates and 2025 Outlook

Looking ahead, BP faces several headwinds and operational shifts heading into 2025. The company has already cut 4,700 jobs, about 5 percent of its global workforce, in an effort to improve efficiency. It also divested assets in Egypt and Trinidad, which will contribute to lower upstream production in the near term.

BP remains committed to reducing debt, with net debt declining 5.2 percent quarter-over-quarter to $23 billion, slightly better than analyst estimates. However, it continues to trail industry peers in financial health and operational efficiency.

The company’s first-quarter guidance projects lower upstream production due to prior divestments, continued weakness in refining margins, and exposure to a strong U.S. dollar, which affects BP’s commodity-linked earnings.

One of the key decisions BP is considering is expanding its U.S. shale gas output, given that returns on gas now exceed those of oil in certain shale basins. This marks a potential shift in BP’s strategy toward leaning more on natural gas production as a growth driver, particularly in the North American market.

Market Reaction and Investor Sentiment

BP’s stock initially gained 6.7 percent following reports of Elliott Management’s stake, reclaiming its 200-day moving average for the first time since July 2024. However, after earnings, shares were relatively unchanged, suggesting investor caution as they await more clarity on BP’s future direction.

BP continues to trade at a discount relative to its peers, with analysts at Bernstein arguing that the company needs a major strategic overhaul to close its valuation gap. Investors appear receptive to change, as demonstrated by the initial rally on Elliott’s involvement, but further upside may depend on the company’s willingness to pivot back toward oil and gas as a primary focus.

Conclusion

BP’s disappointing fourth-quarter results reinforce ongoing structural and strategic challenges, with weaker refining margins, higher costs, and execution risks on its energy transition strategy weighing on earnings. However, Elliott Management’s investment has injected new urgency for change, potentially forcing BP to rethink its approach to balancing traditional oil and gas with renewables.

Heading into its February 26 investor event, BP will need to provide a clear and credible roadmap for unlocking value, whether through restructuring, increased hydrocarbon investments, or strategic divestitures. With investor patience wearing thin, the next steps BP takes could determine whether the company reverses its underperformance or remains stuck in a valuation rut.