BP Plc (BP.) Ordinary US$0.25

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BP’s fourth-quarter revenue rose from $45.8bn to $47.4bn, driven by increases in gas & low carbon and customers & products.

Underlying operating profit increased 9.3% to $4.4bn, in line with forecasts. The increase was down to a return to profit in customers & products which had been impacted by a refinery outage last year, and lower central costs. All other business lines saw profits fall, mainly reflecting lower commodity prices.

Free cash flow fell from $3.7bn to $3.4bn impacted by increased capital expenditure. Net debt fell $0.8bn to $22.2bn helped by higher levels of disposals.

BP declared a final dividend of $8.32 per share and has suspended buybacks.

Underlying production is expected to be broadly flat in 2026. Capital expenditure is expected to fall to between $13bn-$13.5bn (2025: $14.5bn), and disposals are expected to reach $9bn-$10bn.

The shares fell 4.1% following the announcement.

Our view

There were no major surprises in BP’s fourth-quarter results, but markets still took exception to the board’s decision to suspend share buybacks to bring debt down to target levels. When CEO Meg O’Neill joins in April, we still think her key areas of attention should be shoring up the balance sheet, improving profitability and defining the company’s role in the energy transition.

BP’s already refocussing on its core competencies of oil & gas extraction and has made some notable progress on fresh discoveries and new project start-ups. But that doesn’t look like enough to increase production this year.

As with all natural resource extraction, there’s never any guarantee that new sources of production perform as expected. It also means the company’s future profits remain intrinsically linked to oil & gas prices, over which it has no control. Prices have had a volatile start to 2026 , but macroeconomic uncertainty, and fears of oversupply means there’s still some downside risks to be wary of. Further out we still see strong long-term demand for fossil fuels, but that may change as the energy transition gathers steam. Cost efficiencies should provide some support to the bottom line but that may not be enough to boost profit if the oil price remains depressed.

One of O’Neill’s milestones at her previous employer was Woodside’s acquisition of BHP Petroleum. With oil prices under pressure, further consolidation in the sector can’t be ruled out. BP is most frequently seen as prey rather than the hunter. But in either case, operational improvements are what’s required for a strong position at the negotiating table.

In the near term, shareholder distributions look to be taking a back seat as BP focuses on bringing down its debt levels. While the dividend yield of 5.1% looks to be sustainable, buybacks are off the table for now. The buyback pause, and a $20bn disposal program could see net debt reach the target range of $14bn-$18bn in relatively short order. But until new capital allocation priorities are defined, the longer-term outlook for payouts is unclear, with no further distributions guaranteed.

All in, BP’s valuation has strengthened on the hopes it gets back to basics, with its earnings multiple now ahead of some more financially robust peers. We think the strategic shift has some legs but until the new boss outlines her vision for the company, there’s a higher than usual level of uncertainty about the future.

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 issues. Notably, the company aims to reach net zero emissions across its entire operations (Scope 1 & 2) on an absolute basis by 2050, and net zero for the carbon intensity of sold energy products by 2050.

BP’s recent strategy reset signals a change in approach to the transition. This includes increasing oil and gas investment by around 20% and decreasing investment in the transition business by more than $5bn. The company still aims to meet the net zero targets above. Persistent controversies relating to environmental breaches continue to expose BP to legal and compliance risks, including significant financial penalties.

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 LSEG. 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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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