Will BP's restructuring bolster the wider turnaround strategy?

Returning cash to shareholders via buybacks and dividends is central to the investment thesis for oil majors. BP’s decision to cut its buyback from $1.75bn to $750mn, then ditch it altogether somewhat diminished the investment thesis. Investors haven’t turned their backs – shares advanced in the days after the 10 Feb announcement. The subsequentwar in the Middle East and surge in oil and gas prices – which has boosted BP shares considerably - has provided further cover for big changesrequired at the oil major. These changes were likely coming any way, but it’s got a bit more breathing room.

BP now plans to reorganise into two main business units – upstream and downtream – as part of new CEO’s Meg O’Neill’s push to speed up the oil major’s turnaround strategy begun last year under her predecessor.

Whilst there is no set timeline for the transition, it confirms that BP’s new leadership is intent on pushing for further transformation. It’s believed the activist investor Elliott Management, which has a roughly 5% stake in BP, has pushed for the rejig.Currently BP is split into three main divisions: Gas & low carbon energy, Oil production & operations, and Customers & products segment.BP has faced complaints from investors that its three-pronged structure had made it too complex, and harder to compare with peers such as Shell and Exxon Mobil.

A spokesperson on Tuesday (14 Apr) confirmed that the realignment was about making “a simpler, stronger, more valuable BP” which requires “a clear upstream and downstream”.

BP split its business into two main upstream and downstream units until 2020, when then-CEO Bernard Looney drove a push into renewable energy that never quite worked and was punished by investors through years of relative underperformance by its shares. Since then, the company has undergone a series of divestments of its renewables business and vowed to refocus on oil and gas production. In January BP said it would take a $4-5bn hit from its green energy business, taking cumulative write-downs over the last two years to $20bn.

The announcement to reshape its business units from 3 to 2 came alongside the group’s Q1 2026 trading update, in which it hailed an “exceptional” quarter for its oil trading business. At the same time, it expects improved refining margins but slightly lower production. Net debt is expected to rise from $22bn in the previous quarter to between $25bn and $27bn, due to a working capital build as a result of market volatility.

BP has also moved to overhaul its leadership with Emma Delaney leaving her role as customer and products chief to become OMV chief executive in September. It follows the news a fortnight ago that Carol Howle was stepping in as deputy chief executive to oversee the company’s portfolio review and strategy overhaul.

Investment case fundamentally questioned

The swift moves by O’Neill to simplify the business chime with a belief that BP needs to see some fundamental changes. 

Although only Exxon has outperformed BP among peers over the last year in terms of the share price, the British’s company’s stock has broadly underperformed for years. After lacklustre profits last year it was the only oil major to cut its share buyback reprogramme in February.

Whilst this buys time for O’Neill it also removes one of the most obvious investment cases. The overhaul therefore needs to show results soon, but is likely to take at least a year or more. But with oil prices high, trading “exceptional” and a new CEO, there is a bit of freedom to enact change.

Iran war provides near-term boost

BP can be thankful that oil prices are higher and it’s less exposed to the Middle East for its output than peers – maybe around 10% of its output, which is offset by the price rises. Each $1 in Brent adds about $340mn in pre-tax profits, but this short-term boost only papers over structural issues that have required the overhaul.

The company’s proven reserves of about 7 years isrelatively low compared with peers, but its Bumerangue discovery off Brazil holds immense promise, whilst recent exploration efforts have been positive.

Investors are going to want to see further signs of improvement and simplification – for instance focusing on its most valuable US and Brazil assets over the North Sea.

Getting net debt down will be a major focus, particularly given the recent upswing in working capital requirements – BP aims to cut net debt to just $14bn-$18bn by 2027. Getting there will be crucial to resuming buybacks and increasing dividends once again, which is what investors want.