bp to invest $10b annually in hydrocarbons in strategy reset

bp unveiled its widely-anticipated strategy reset on Wednesday, increasing annual oil and gas investment to $10 billion and targeting $20 billion in divestments by 2027 to drive improved performance, aimed at growing free cash flow and long-term shareholder value.

The strategy reset also includes an updated financial framework and a review of its lubricants business, Castrol, while allocating $1.5 billion to $2 billion per year for investment in energy transition businesses – more than $5 billion lower than its previous expectation. It also aims to invest selectively in biogas, biofuels and EV charging.

“We will grow upstream investment and production to allow us to produce high margin energy for years to come,” Murray Auchincloss, bp CEO, said in a statement. “We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset bp, with an unwavering focus on growing long-term shareholder value,” he added.

“We will grow upstream investment and production to allow us to produce high margin energy for years to come. We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset bp, with an unwavering focus on growing long-term shareholder value."
- Murray Auchincloss, bp CEO

Key highlights of bp’s rethink include:

• Strategy reset: reducing and reallocating capital expenditure, significantly reducing costs and driving improved performance - to grow cash flow and returns - supporting a stronger balance sheet and resilient distributions.
• Growing upstream: increasing oil & gas investment to ~$10bn p.a.; strengthening portfolio; growing production to 2.3–2.5mmboed in 2030; additional ~$2bn operating cash flow in 2027.
• Focusing downstream: reshaping portfolio to drive growth; high-grading and focusing on advantaged and integrated positions; announced strategic review of Castrol; driving improved performance; additional $3.5–4bn operating cash flow in 2027.
• Disciplined investment in the transition: selective investment in biogas, biofuels and EV charging; capital-light partnerships in renewables; focused investment in hydrogen/CCS; investment in transition businesses of $1.5–2bn p.a., over $5bn p.a. lower than previous guidance.
• Updated financial frame: reducing annual capex to $13–15bn to 2027; targeting significantly higher structural cost reductions of $4–5bn by end 2027; $20bn divestments by 2027, including potential proceeds from Lightsource bp and strategic review of Castrol; reducing net debt, targeting $14–18bn by end 2027; resilient shareholder distributions, guidance of 30–40% of operating cash flow.
• Growing free cash flow and returns: targeting >20% compound annual growth in adjusted free cash flow to 2027, and returns on average capital employed of >16% by 2027.

The strategy will see bp grow its upstream oil and gas business, focus its downstream business, and invest with increasing discipline into the transition, the company said in a statement.

“The board believes that this is an important strategic reset for bp and is confident that it, together with rigorous performance management, will deliver improved performance and sustainable value for bp’s shareholders,” Helge Lund, bp’s chair, said in a statement.

“Over the past 12 months, we have worked closely with Murray and his team as they have developed the new direction, ensuring it reflects the significant changes we have seen in energy markets and our purpose of delivering energy to the world today and tomorrow. This new direction places free cash flow growth, returns and value at its heart,” he added.

Financial implications of bp’s strategy reset are expected to strengthen the company’s balance sheet, increase efficiency and support higher returns:

• Reducing capital expenditure: total capex of $13–15bn p.a. to 2027 – $1–3bn lower than in 2024; expected to be ~$15bn in 2025.
• Reallocating capital expenditure: increasing oil & gas investment to ~$10bn p.a.; transition investment1 $1.5–2bn p.a., >$5bn p.a. lower than previous guidance.
• Reducing costs: significantly increasing target to $4–5bn of structural cost reductions2 by end 2027.
• New divestments: targeting $20bn announced by end 2027; proceeds from strategic review of Castrol and bringing partner into Lightsource bp to be dedicated to strengthening balance sheet.
• Reducing net debt: over time, targeting a range of $14–18bn by end 2027.
• Distributions: guidance of 30–40% of operating cash flow to shareholders, over time, through share buybacks and a resilient dividend – which is expected to increase by at least 4% per ordinary share a year, subject to board discretion4. Share buybacks are expected to be announced at time of quarterly results. Subject to board approval, bp expects the share buyback for 1Q 2025 to be $0.75-1.0bn.