By Mitchell Ferman

Image source: Bloomberg

(Bloomberg) -- BP Plc promised major changes at its upcoming strategy update, seeking to reverse a prolonged period of under-performance that has now drawn in activist Elliott Investment Management.

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The pledge, which came as the company reported a sharp drop in fourth-quarter profit, raised expectations for the Feb. 26 investor day. Analysts see BP pivoting away from ambitious plans for low-carbon energy and a pursuing higher growth in oil and gas production.

They also predicted that BP — alone among the major oil companies — would cut share buybacks because of its weaker balance sheet.

“We now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns,” Chief Executive Officer Murray Auchincloss said in a statement on Tuesday. “It will be a new direction for BP, and not business as usual.”

The investor day has long been seen as a crucial test of Auchincloss’s vision for BP, even before Bloomberg reported that Elliott had built up a stake in the company. After several years of falling further behind peers, investors want to see significant change.

“They have set a high bar,” Allen Good, an analyst at Morningstar, said in a note. Investors will be expecting “a reduction in low-carbon spending, robust cost reduction targets and increased hydrocarbon investment that could lead to production growth.”

Shares of the company were little changed at 466.4 pence as of 9:29 a.m. in London. While Elliott’s full plans for its BP investment are yet to be learned, news of its stake on Monday had a big effect on shares, which rose 7.4%, the most in two years.

BP’s adjusted net income for the fourth quarter was $1.17 billion, down from $2.99 billion a year earlier and missing the average analyst estimate of $1.3 billion. Net debt fell to $23 billion, down from $24.3 billion three months earlier.

The company reaffirmed its plan to repurchase $1.75 billion of shares in the current quarter, matching the pace seen in prior periods. RBC analyst Biraj Borkhataria predicted BP would cut this figure for the coming quarters. “Relative to market expectations, the forward-looking guidance looks a little soft,” he said in a note.

The downstream business, which includes refining and selling fuel to customers, lost $302 million on an adjusted basis, according to the statement. The company expects refining margins to remain low in the first quarter.

BP’s large but opaque trading business, which has often helped the company ride out periods of market weakness, didn’t come to the rescue this time. The contribution was weak for oil trading and average for natural gas, according to the statement.

“The 2025 outlook provided by the company today is incrementally negative, mainly due to the guidance for falling production,” Jefferies analyst Giacomo Romeo said in a note.

--With assistance from Will Kennedy and Swetha Gopinath.

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