Can BP Avoid Becoming a Primary Acquisition Target? Existential Risk Exists Here.

(VOR News) – There will be many questions during BP’s board meeting with shareholders at the next investor day, but the most important one for many will be: how did things get so bad?

The current worth of the FTSE 100 company’s shares is less than half of their previous valuation, which was close to £140 billion. Over the past two years, BP’s value has dropped by over 25%, while its rivals in the US and Europe have experienced growth and, in certain cases, achieved record yearly earnings.

To save billions of dollars and satisfy its worried shareholders, the company has announced plans to eliminate thousands of jobs, or 5% of its global workforce.

Due to BP’s decision to invest billions of dollars in renewable energy projects instead of cutting back on oil and gas production, a sizable portion of investors have stopped supporting the company.

The future of BP’s environmental goals is still unclear to some people.

According to recent allegations, BP is undervalued, and Elliott Investment Management, an activist investor group, owns a “significant” position in the company.

This decline could jeopardize the survival of the 120-year-old corporation. According to analysts, BP might be a target for an acquisition by a financially strong rival because its current valuation is lower than that of its separate assets.

The company’s future is likely to be the subject of more conjecture. BP is set to release its annual financial results on Tuesday, amid concerns over a predicted decline in oil and gas production in the fourth quarter of 2024, a prediction of “weak” oil trading performance, and expected “weaker” profit margins in its refining division.

London will have its capital markets day at the end of the month. BP CEO Murray Auchincloss is anticipated to unveil a new plan to address the company’s declining value, substantial debt, and market mistrust of its green energy objectives.

A “holistic shift” in strategy is necessary to rebuild investor confidence, according to Kim Fustier, head of European oil and gas research at HSBC, who says that “we believe BP has a limited opportunity to develop a favorable narrative.”

“BP’s increased oil and gas activities and a more cautious approach to low-carbon energy investments represent a shift that has been underway for a long time,” Fustier said.

Market reaction will depend on how BP communicates its move.

Instead of continuing on the same “unchanged trajectory,” she said, it should focus on a more substantial rebalancing of capital allocation and strategic decision-making.

Stock analysts predict that by the end of the decade, BP will declare its desire to renounce a “goal” of cutting back on oil and gas production.

It is anticipated that spending on the company’s five “transition growth engines,” such as electric vehicle charging and bioenergy, will drop from $6 billion (£4.8 billion) to $8 billion in 2025 before increasing to $7 billion to $9 billion by 2030. According to Fustier, this amount might drop to about $5 billion.

Additionally, according to Giacomo Romeo, an analyst at Jefferies, the company might have to sell off some assets. Although it was anticipated that BP will sell $5 billion worth of assets by the end of the year, he said the company might raise its goal to $8 billion by the next year.

Romeo clarified that these assets can include its onshore wind projects in the US, its retail petrol stations in the Netherlands, or its minority interest in the UK solar company Lightsource BP.

Resuming oil and gas production might not be enough if the company’s new fossil fuel production doesn’t start until the 2030s, when many people expect oil consumption to have peaked.

According to Fustier, investors who care about the environment and are worried about how the energy transition can affect the demand for gas and oil would find this worrying. In conclusion, not much can be done to speed up the BP upstream restart procedure, which is expected to take ten years.

SOURCE: TG