BP Chair to Review Business as Pressure Mounts on Turnaround

A logo sits illuminated at the BP Plc corporate pavilion during the 21st World Petroleum Congress in Moscow, Russia, on Monday, June 16, 2014. Work between Texas-based Exxon, the world's largest oil company by market value, and state-run Rosneft on Sakhalin Island in Russia's Far East provides a template for further exploration, especially in the Arctic's Kara Sea, Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said at the World Petroleum Congress in Moscow today. Photographer: Andrey Rudakov/Bloomberg Photo by Andrey Rudakov /Bloomberg

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(Bloomberg) — BP Plc said its new chairman will conduct a review of the entire portfolio and the company will seek to cut costs beyond current targets as it works to reverse years of poor performance.

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The London-based oil major is under growing pressure to deliver on a turnaround plan, including from activist investor Elliott Investment Management, which amassed a stake earlier this year to force sweeping changes and has pushed for deeper cost cuts. A strategic reset outlined by the company in February received a lukewarm response from investors.

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BP announced the new review Tuesday as it reported second-quarter earnings that topped analyst estimates and a $900 million reduction in structural costs in the first half. The company said it’s completed or announced at least $3 billion of divestments this year as it works to reduce debt and refocus on its core oil and gas business after a failed net-zero strategy.

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Chief Executive Officer Murray Auchincloss’s corporate reset in February included targets for reducing costs and capital spending and $20 billion of asset sales by the end of 2027. The CEO said Tuesday the company is initiating a further cost review.

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“We want to drive cost efficiency as much as we possibly can,” Auchincloss said in a Bloomberg Television interview. “We’ve had a good start, but we’re two quarters into 12; a lot more to do.”

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Separately, incoming Chairman Albert Manifold “will conduct a thorough review of our portfolio of businesses to ensure we are maximizing shareholder value moving forward – allocating capital effectively,” Auchincloss said in a statement. “BP can and will do better for its investors.”

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The company posted second-quarter adjusted net income of $2.35 billion, exceeding the average analyst estimate of $1.76 billion. The shares climbed 1.5% as of 8:50 a.m. in London, extending their gain since early April to more than 20%, outstripping UK rival Shell Plc.

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Shareholder Returns

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Net debt dropped by about $1 billion to $26 billion at the end of June. The company maintained quarterly share buybacks at $750 million, while the dividend was raised by 4%.

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What Bloomberg Intelligence Says

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“BP still has some way to go to allay investor criticism, but 2Q results show a de-risking of its near-term prospects and distributions”

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—Will Hares, BI global energy analyst

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Click here to read the research

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Manifold, previously CEO of building-materials company CRH Plc, officially starts Sept. 1, and incumbent Chairman Helge Lund will depart a month later. Elliott has called on Manifold to make urgent improvements to the firm’s cost base and capital allocation, saying the turnaround plan is too weak.

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Divestments are viewed as a key element of the overhaul. BP has made progress on a series of small disposals, and said it still expects to raise as much as $4 billion this year. However, it’s yet to offload lubricants unit Castrol, which underpins the asset-sale plan.