The exclusive league of energy giants—Exxon Mobil, Chevron, Shell, and TotalEnergies—has traditionally boasted sprawling upstream and downstream oil and gas ventures, resilient balance sheets, and long-term strategies that have consistently delivered substantial, stable shareholder value. BP, however, has increasingly struggled to meet these benchmarks. A succession of setbacks, from the devastating Deepwater Horizon disaster to a recent, faltered pivot to renewables and a management scandal, has significantly slashed its market capitalization, leaving it financially vulnerable and without a clear strategic direction.
A Strategy Reset Under Scrutiny
In February, CEO Murray Auchincloss acknowledged the urgent need for change by unveiling a fundamental strategy reset. The plan includes reducing spending to below $15 billion by 2027, cutting up to $5 billion in costs, and selling $20 billion of assets. These measures are designed to boost performance and rein in ballooning debt. The strategy also adjusted the rate of shareholder returns to 30-40% of operating cash flow.
Despite these proposed changes, investor concerns have largely remained unaddressed. BP's shares have declined by 18% since the strategy update, underperforming its major rivals. Adding to the pressure, activist shareholder Elliott Management, which has recently acquired a 5% stake in the company, has indicated a desire for even deeper spending cuts. The consensus is clear: a more profound transformation is needed.
The Burden of Buybacks and Unseen Debt
A significant area for potential change lies in BP's approach to capital management, particularly its share repurchase program. While multi-billion-dollar buyback programs are common among energy majors—serving to return capital to shareholders and attract investors wary of the future of fossil fuel demand—BP's current buybacks appear to be a luxury ill-suited to its current financial predicaments.
In its first-quarter results released in February, BP announced a $750 million buyback for the subsequent three months. While lower than the $1.75 billion in the preceding quarter, this still extrapolates to an annual commitment of $3 billion. Such a pace seems imprudent, especially given the approximate 20% drop in oil prices to around $65 a barrel this year and a darkening global economic outlook. CEO Auchincloss's financial objectives are based on a Brent oil price of $70, suggesting he may struggle to meet targets without incurring further debt.
Removing the annual $3 billion buyback could significantly aid BP in reducing its net debt to between $14 billion and $18 billion by 2027, a substantial improvement from the $27 billion recorded at the end of March 2025.
The Lingering Shadow of Deepwater Horizon
The "ground zero" of BP's financial decline is often traced back to the catastrophic 2010 Deepwater Horizon disaster in the Gulf of Mexico. This event generated an staggering $69 billion in clean-up and legal costs, with the company still paying out over $1 billion annually in settlements. The financial fallout forced BP to divest billions in assets and take on massive amounts of debt, leading to its market value plummeting from approximately $180 billion in 2010 to around $77 billion today.
BP's debt-to-capitalization ratio, or gearing, stood at 25.7% at the end of the first quarter of 2025. This is significantly higher than its peers, such as Shell's 19% or Chevron's 14%. Moreover, the reported $27 billion net debt figure does not fully capture all of BP's financial obligations. This includes $17 billion in hybrid bonds—instruments that blend features of equity and debt and often flatter leverage ratios by not being treated as regular debt by rating agencies. Anish Kapadia, director of energy at Palissy Advisors, estimates BP's adjusted net debt to be as high as $86 billion at the end of Q1 2025, when factoring in all liabilities.
Ultimately, cutting buybacks could enable BP to more rapidly tame its substantial debt pile and repair its balance sheet, thereby laying a stronger foundation for rebuilding investor confidence. The impending departure of current BP Chairman Helge Lund in the coming months presents a timely opportunity for the company to consider such radical financial recalibration. The selection of Lund's successor will be crucial, with a much-needed sense of financial realism emerging as a paramount qualification.