BP now stands for ‘Best Partitioned’6 Feb 2025 08:24
LONDON, Feb 6 (Reuters Breakingviews) - Two decades ago, BP (BP.L), opens new tab made a big deal of repositioning itself as “Beyond Petroleum”. Then-CEO John Browne’s attempt to embrace lower-carbon energy came to nought, and 20 years later so did a similarly quixotic gambit by another now-ex boss, Bernard Looney. In 2025, Looney’s own successor Murray Auchincloss may examine the cards he’s been dealt and conclude that a more apt slogan for the $85 billion group is “Best Partitioned”.
Since Auchincloss took over in January 2024, BP shares have fallen 11%, while rivals like $201 billion Shell (SHEL.L), opens new tab and $483 billion Exxon Mobil (XOM.N), opens new tab grew. The upshot is BP trades at a palpable discount to peers: based on 2025 free cash flow of $11.8 billion, per analyst forecasts compiled by Visible Alpha, BP yields 14%. That makes it cheap compared to Shell’s 13% and Exxon Mobil’s 6%. It also trades at around 3 times 2025 EBITDA, versus Shell’s 4 times and Exxon’s 7 times.
Auchincloss has already announced layoffs and asset sales, but he has a chance to go further later this month when he presents a strategic update. The usual antidote to uppity oil investors is to shovel large quantities of cash their way via buybacks and dividends. Yet at 31% of capital employed, BP’s net debt, including operating leases, militates against much largesse. HSBC analysts expect the group’s leverage to remain the highest among the five majors they track until the end of the decade.
Furthermore, BP looks strategically stuck between two stools. On the one hand, Auchincloss has rowed back from Looney’s target to cut the group’s oil and gas production by 40% by 2030 compared to 2019, and may retreat yet further. On the other, BP’s output of these fossil fuels is now expected to stay flat to 2030, might still decline if the company sells more assets to cut debt, and Auchincloss still spent $5 billion last year on the green transition. With analysts already expecting BP to undershoot its current 2025 EBITDA target, the risk is an underwhelming equity story that fails to be sufficiently compelling for either green fans or oil bulls.
Throw in a 2025 global oil supply glut that could see crude prices fall further, and BP looks like a takeover target. With the valuation gap between itself and UK rival Shell at a high level, such a union would create huge synergies. But it could also risk a huge culture clash, an extended regulatory backlash, and punitive merger terms that reflect BP’s weak bargaining position.
Auchincloss does have one other option, however: he could break the company up. Corporate chieftains tend not to surrender their empires easily. But in BP’s case, a partition could create substantial value.
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