Bp'S Strategy Reset Is Shaky As Trade War Continues, Oil Prices Drop

(Bloomberg) – BP Plc’s big strategy reset is less than two months old, but the foundations of the company’s pivot back to oil are already starting to look shaky. 

After years of under-performance, the struggling major made a series of financial pledges in February intended to assure investors that dividends and share buybacks — a core part of the industry’s appeal — would be secure for years to come. 

Yet one key requirement in targets for boosting cash flow and improving returns was an oil price of $70 a barrel.

Brent crude, the international benchmark, plunged below that level last week after U.S. President Donald Trump launched his trade war and OPEC+ agreed to raise production by more than expected. Oil is near $64 a barrel in London and influential forecasters say this price, or even lower, could be the new normal for markets this year and next. 

“They’re facing an environment where oil prices look skewed to the downside,” said Morningstar analyst Allen Good. While peers such as Shell Plc look well placed to withstand a slump, bp is “in a particularly precarious position.”

bp sells more than just crude oil, and its targets are also based on prices of natural gas and refined fuels that have seen less price volatility than Brent, but the financial impact of recent market gyrations is large.

By the company’s own estimates, each $1 drop in oil prices wipes an estimated $340 million from pretax profit. Analysts are questioning whether the company can maintain share buybacks, while a prolonged oil industry slump would complicate its plan to curb debt with $20 billion of asset sales. 

Meanwhile, activist investor Elliott Investment Management remains among the company’s largest shareholders, pressing management to make bolder changes. A spokesperson for Elliott declined to comment.