BP CEO Murray Auchincloss pledged on Feb. 11 to fundamentally reset the company's strategy as it reported a 35% fall in annual profits, missing analysts' expectations.

The drop in profit to $8.9 billion follows weekend reports that Elliott Investment Management has built a stake in the company, intensifying demands for strategic shifts.

Auchincloss declined to comment on Elliott's reported involvement, in a call with Reuters on Feb.11.

Elliott has also declined comment.

The oil major also posted a 61% drop in fourth-quarter profits, year-on-year, to the weakest since the fourth quarter of 2020, when pandemic lockdowns shrank demand for oil.

Following the lower earnings, BP will also cut bonuses for its senior leaders to 45% of target after the company missed some financial goals in 2024, three sources close to the company said on condition of anonymity, citing an internal memo.

The company's 2024 adjusted EBITDA of $38 billion was below its target of $40.9 billion.

BP joins other majors that have experienced a decline in earnings throughout 2024, following record profits in the previous two years when consumption recovered from the pandemic retreat and the disruption caused by the Ukraine war led energy prices to spike.

But BP has underperformed its peers, piling pressure on Auchincloss to deliver change.

Its share price eased 0.9% to 460.85 pence by 1500 GMT.

On Feb. 10, it had rallied strongly on expectations that Elliott's acquisition of an undisclosed stake would accelerate and deepen reforms, possibly including board changes.

"We now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns," Auchincloss said in a statement on Feb. 11.

"Our oil and gas business is well-positioned and performing strongly... we are focused on improving performance in refining, have stopped projects that won't compete for capital, and are restructuring our low-carbon business to grow, but in a more capital-light way."

On a call with analysts Auchincloss also said that BP was considering increasing U.S. shale gas output due to higher prices and was seeing returns on gas surpassing those on oil in the basin.

BP's strategic reset

Auchincloss has worked to rebuild investor confidence, after his predecessor Bernard Looney was fired for failing to disclose relationships with employees.

He is expected to use the capital markets day (CMD), scheduled for Feb. 26, to announce his new strategy.

"Investors will likely be expecting a reversal of the integrated energy company strategy, including a reduction in low-carbon spending, robust cost reduction targets and increased hydrocarbon investment that could lead to production growth," Morningstar analyst Allen Good said.

The company also extended its $1.75 billion buyback target to first-quarter.

At the same time, BP said it plans to review financial guidance, including 2025 share buyback and capital expenditure expectations.

RBC Capital Markets analyst Biraj Borkhataria said the brokerage expected a lower buyback rate beyond the first quarter.

Weaker earnings and outlook

The company's quarterly earnings were dragged down by weaker refining margins. Its fourth-quarter average refining margin stood at $13.1/ bbl, down from last year's $18.5/ bbl.

For the current quarter, BP expects margins to remain low and a lower level of refinery turnaround activity compared with the fourth-quarter.

BP's underlying replacement cost profit, the company's definition of net income, dropped to $1.17 billion in the three months ending Dec. 31, from last year's $2.99 billion.

Analysts had projected a fourth-quarter profit of $1.26 billion, based on a company survey, and $1.20 billion according to data compiled by LSEG.

For full-year 2024, analysts had expected a profit of $9.21 billion, according to LSEG data.

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