BP has appointed Murray Auchincloss as CEO with immediate effect. He has held the position on an interim basis since the departure of his predecessor Bernard Looney last September, amidst a scandal concerning personal relationships. Before that, Mr Auchincloss was the group's chief financial officer.
He noted that BP's strategy to transition from an international oil company to an integrated energy company was unchanged.
The shares were trading broadly flat following the announcement.
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Our view
The recovery seen in global oil prices in the second half of last year has proved to be short-lived amidst growing concerns of oversupply in the market. This threatens to impact BP's bottom line. Meanwhile lower margins across the refining industry coupled with downtime at BP's refineries will be further headwinds this year.
But BP is in a strong financial position and continues to generate impressive cash flows. That's just as well because both BP's traditional oil & gas extraction business, and emerging focus on cleaner forms of energy, are highly capital intensive. Capital expenditure guidance for the year just gone totalled $16bn and is likely to stay at a similar level till at least 2030.
Despite the weakness in commodity prices, consensus forecasts suggest that BP's capital investment plans are well covered, leaving ample room to increase dividends modestly and continue buying back shares. Assuming an oil price of $60 per barrel, some way below the current price, BP should have room to continue growing the dividend, and purchase around $4bn of shares each year. Of course, no shareholder returns are guaranteed.
Oil & gas assets remain the key drivers of cash flow for now and underlying production is set to increase by 2025. But there is growing pressure globally for more meaningful taxes on oil and gas profits. This is a risk to BP's ability to sustain its high cash flows, and the recently introduced UK energy profits levy on its North Sea operations saw the underlying tax rate rise from 33% to 39% over the first nine months 2023.
BP's valuation remains some way below the long-term average. In our opinion, this reflects investor concern over the long-term outlook for the oil & gas industry. However it's also lagging its peers and that could present an opportunity if the new CEO can provide investors with assurance that BP can prosper over the long term. Although of course there are no guarantees.
The Group has been making some meaningful headway in transition technologies such as biogas, electric vehicle charging and renewables. Whilst investment in low carbon energy is expected to grow, hydrocarbons remain the focus of the company's spending plans for the foreseeable future. The early signs are that Murray Auchincloss won't make too may changes to the direction of travel but we expect to get a clearer view of his vision for the future in due course.
Environmental, social and governance (ESG) risk
Environmental concerns are the primary driver of ESG risk for oil and gas producers, with carbon emissions and waste disposal being the main issues. Health and safety, community relations and ethical governance are also contributors to ESG risk.
According to data from Sustainalytics, BP's overall management of material ESG issues is strong. It appears to have strong oversight over its key ESG issue. Notably, the company aims to reach net zero emissions across its entire operations (scopes 1 and 2) and upstream operations (scope 3) on an absolute basis by 2050. But nearer-term reduction targets for scope 3 emissions have recently been lowered. Moreover, BP has committed to reducing the carbon intensity of its products to net zero by 2050. However, controversies relating to environmental breaches continue to have a moderate impact on BP's overall performance.
ESG data sourced from Sustainalytics
BP key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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