BP Reset Falls Short: Why Bid to Catch Exxon Sent Stock Falling

BP's strategic reset, announced in February 2025, aimed to boost shareholder returns by increasing oil and gas production and reducing investment in renewables. However, the market reaction to this shift was tepid, with the stock failing to react positively to the news and remaining down 20% from its 12 April 2024 high of £5.40. This article explores the reasons behind the underperformance of BP's strategic reset compared to its peers, such as ExxonMobil, and the role of activist investor Elliott Management in shaping the changes.



BP's strategic reset involved reducing investment in low-carbon projects by over $5 billion to $1.5-$2 billion per year and increasing oil and gas investment to around $10 billion per year. The company also planned to cut costs by $4-5 billion, which was likely to include job losses in non-oil and gas sectors and energy transition teams. The reset aimed to drive shareholder returns, with a distribution of 30-40% of operating cash flow over time to shareholders through share buybacks and a 'esilient dividend' that could rise by up to 4% a year. The company also targeted higher returns of more than 16% by 2027.

However, the market reaction to the reset was less than enthusiastic. The stock failed to rally on the news, and the share price remained down nearly 1% on the day of the announcement. This could be attributed to several factors:

1. Timing of the shift: BP's decision to pivot back to oil and gas came at a time when oil prices were falling, which made the move less appealing to investors. In contrast, ExxonMobil and other peers had already benefited from the high oil prices and were better positioned to weather the downturn.
2. Market sentiment: The market was already concerned about the environmental impact of BP's previous strategy, and the shift back to oil and gas was seen as a step backward. This negative sentiment was not present for ExxonMobil, which had maintained a more consistent focus on fossil fuels.
3. Elliott Management's involvement: The activist hedge fund Elliott Investment Management took a near-£4bn stake in BP, pushing for strategic changes and higher returns. While this initially boosted investor confidence, the subsequent strategic reset failed to meet expectations, leading to a tepid market reaction. In contrast, ExxonMobil did not face similar activist pressure during this period.
4. Financial performance: BP's annual profit dropped to $8.9 billion in 2024, missing analysts' expectations and underperforming its peers. The company's fourth-quarter profit fell 61% year-on-year, the weakest since 2020. ExxonMobil, on the other hand, maintained stronger financial performance during this period.



BP's revised focus on oil and gas production and reduced investment in renewables is expected to have a significant impact on its long-term growth prospects and shareholder value. The company's increased oil and gas production is expected to drive earnings growth of 34.1% per year to the end of 2027, according to consensus analyst forecasts. The company's decision to cut its previously planned renewables funding by over $5 billion to $1.5-$2 billion per year is also expected to have a positive impact on shareholder value, as it allows BP to allocate more capital to its oil and gas business, which is expected to generate higher returns given the current high oil prices.

However, there are some risks associated with BP's strategic reset. Government pressure for the company to revert to its previous greener energy transition strategy could potentially impact the company's long-term growth prospects. Additionally, the company's decision to reduce its investment in renewables could be seen as a missed opportunity to capitalize on the growing demand for clean energy.

In conclusion, BP's strategic reset, while aiming to boost shareholder returns by increasing oil and gas production and reducing investment in renewables, failed to resonate with investors and the market as expected. The underperformance of the reset compared to its peers, such as ExxonMobil, can be attributed to factors such as the timing of the shift, market sentiment, Elliott Management's involvement, and financial performance. While the reset is expected to have a positive impact on the company's long-term growth prospects and shareholder value, there are also risks associated with the changes. Investors should closely monitor the company's progress and the market's reaction to the reset to make informed decisions about their investments in BP.