Under pressure from Elliott, BP p.l.c. Sponsored ADR (BP.US) is "forced" to reset its strategy: focus on oil and gas business, cutting stock buybacks.

BP p.l.c. Sponsored ADR (BP.US) has announced a significant strategic adjustment, refocusing on its core oil and gas business and committing to selling assets and cutting expenses. However, the company's stock price fell due to a substantial reduction in its stock buyback program. In the highly anticipated strategic update, BP p.l.c. Sponsored ADR CEO Murray Auchincloss abandoned plans to exit the oil and gas business and instead committed to a slight increase in production. He also reduced investments in renewable energy and began a strategic review of the lubricants business, Castrol. If this business is sold, it could be valued at up to $10 billion. These strategic updates aim to appease disgruntled shareholders, including activist investor Elliott Investment Management. However, it is worth noting that the CEO was forced to slow down the pace of stock buybacks, which had been a key factor in attracting investors to the industry. With BP p.l.c. Sponsored ADR's peers continuing to pay dividends over the next year, the London-based company will reduce its quarterly buyback size from $1.75 billion to no more than $1 billion. As a result of this news, both the British and American stocks of BP p.l.c. Sponsored ADR experienced declines. As of writing, the company's American stock fell by over 1% pre-market. Since reports earlier this month that Elliott holds nearly $5 billion worth of shares in BP plc Sponsored ADR, the company has faced immense pressure. The next steps of this activist investor will depend on whether Auchincloss' commitments are enough. Elliott has been calling for drastic reforms at BP plc Sponsored ADR, including a more extensive withdrawal from the low-carbon energy sector. After 13 months as CEO, this is Auchincloss' first major strategic adjustment. He had initially promised to continue the rapid transition to low-carbon energy started by his predecessor, Bernard Looney. However, after a 16% drop in stock price last year, he pledged to "fundamentally reset" the company's strategy. In an interview, Auchincloss stated, "We have developed a very exciting reset strategy, focusing on growing our upstream business," while cutting expenses in other areas to help strengthen BP p.l.c. Sponsored ADR's balance sheet. "I think investors will like this strategy in the long run." BP p.l.c. Sponsored ADR plans to increase its annual investments in oil and gas to about $10 billion, with the goal of increasing production to 2.3 to 2.5 million barrels of oil equivalent per day by 2030. In comparison, the previous target was to reduce production by 25% from 2019 levels by the end of this decade. The company will reduce its annual investments in low-carbon energy to $1.5 to $2 billion, about $5 billion less than previous guidance. BP p.l.c. Sponsored ADR will continue to make "selective" investments in gas, biofuels, and electric vehicle charging businesses. The company plans to sell about $20 billion in assets by the end of 2027, helping to reduce net debt from nearly $23 billion at the end of last year to $14 to $18 billion. BP p.l.c. Sponsored ADR's two key new targets are to increase cash flow by more than 20% annually by 2027 and raise the average capital return rate for that year to over 16%. This would require Brent crude oil prices to reach $70 per barrel, US natural gas prices to reach $4 per million British thermal units, not far from current levels. Morningstar analyst Allen Good stated in a report, "Refocusing on hydrocarbons is positive for BP p.l.c. Sponsored ADR, as are overall spending reductions and asset sales. However, the measures taken are not enough, including the production growth target, and BP p.l.c. Sponsored ADR's buyback rate has been significantly reduced." Sources say that if Elliott is not satisfied with BP p.l.c. Sponsored ADR's actions, the hedge fund may push for changes in the board and management. The company's chairman, Helge Lund, may face particular pressure, as it is well known that Lund is a key supporter of the company's currently criticized net zero strategy. Lund stated in a release, "The board believes this is an important strategic reset for BP p.l.c. Sponsored ADR, and believes that through rigorous performance management, it will deliver better performance and sustainable value for shareholders."