By Brian Swint

BP cut its share buyback program after reporting weaker-than-expected earnings. The stock fell, and it may be a bad sign for larger U.S. rivals Exxon and Chevron.

Part of the drop in earnings was down to lower oil prices, which will hurt all the majors, but London-based BP also has its own homegrown problems. It's trying to catch up to the profitability of peers after languishing for the past five years, and it has attracted a powerful activist in Elliott Management.

BP reduced its buyback plan to $750 million a quarter to from $1.75 billion. That will bolster the company's balance sheet, which is carrying a relatively high debt load. But the stock suffered -- the American depositary receipts (ADRs) fell 3.4% when the market opened, while the S&P 500 was flat.

Earnings for the first quarter came in at 9 cents per share, in line with estimates, and top-line revenue was slightly higher than anticipated, according to the FactSet consensus. However, replacement cost profit, an industry standard measure, was $1.38 billion -- missing the consensus of the company's own survey of $1.53 billion and well below the $2.7 billion recorded a year earlier.

The disappointment may create room to impress later this year, but CEO Murray Auchincloss is running out of time. Elliott has built a stake of more than 5% and is pushing for bigger cash-flow targets, steeper cost cuts, and lower capital expenditure. All of those goals are considerably more aggressive than the plan laid out earlier this year.

Auchincloss, who took the reins at the end of 2023, has the task of making BP stock more competitive with rivals Shell, Exxon, Chevron, and TotalEnergies after years of underperformance. His plan is to focus on more oil and gas production, a reversal of the previous strategy that called for lower fossil fuel output and more spending on low-carbon energy sources.

One thing counting against Auchincloss is that he was instrumental in coming up with BP's 2020 strategy, which is now being scrapped. At BP's annual general meeting in April, almost a quarter of shareholders voted not to re-elect Chair Helge Lund. That's a symbolic gesture since he had already made plans to leave the company, but it's a clear warning sign of discontent with management.

Auchincloss is highlighting his plan to accelerate compound annual cash flow growth to 20% over the next three years, which would bring the yearly figure to about $14 billion in 2027. Elliott thinks it can do better and get to $20 billion by then. The hedge fund is also pushing for cost savings of more than $6 billion, according to people familiar with the demands.

Coming into Tuesday's session, BP ADRs have dropped 1.5% since Jan. 1 and are down 25% over 12 months through Friday's close. Oil prices have declined more than 20% in the past year.

BP's dividend yield stood at 6.5% coming into Tuesday's session, double Exxon's. But analysts say that's a reflection of concern that shareholder returns could be cut in the future, rather than a sign the stock is cheap.

Exxon, Chevron, and Shell report earnings on Friday.

Write to Brian Swint at brian.swint@barrons.com

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April 29, 2025 09:55 ET (13:55 GMT)

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