BP Falls as Weak Cash Flow Casts Doubt on Future Buybacks

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(Bloomberg) — BP Plc’s finances took another battering in the first quarter, with a slump in cash flow and rising debt forcing the company to cut its buyback to the low end of its target range.

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The company was already seen as the most vulnerable oil major to weakening markets, and its first-quarter earnings reinforced that view. Cash flow from operations, a key financial measure that underpins distributions to shareholders, was a little over half what it was a year earlier and the lowest level in more than four years.

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That happened before President Donald Trump’s trade war pushed Brent crude well below $70 a barrel —the price assumption for BP’s financial targets. The UK energy giant’s two-month-old strategy reset is under growing pressure from activist Elliott Investment Management, which has become increasingly public in its campaign for even greater change.

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The increase in net debt “will cast doubt on BP’s ability to continue to buy back shares in a weakening macro environment,” Jefferies analyst Giacomo Romeo said in a note.

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Shares of the company fell as much as 4% to 347.5 pence in London trading.

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“I’m confident that our plans to strengthen the balance sheet, reduce costs, and improve cash flow and returns will grow long-term shareholder value and strengthen the resilience of BP,” Chief Executive Officer Murray Auchincloss said in a statement on Tuesday.

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BP reduced its share buyback to $750 million, down from $1.75 billion in the prior quarter. Adjusted net income was $1.38 billion in the first quarter, according to the statement, about half the level of a year earlier and missing the average analyst estimate of $1.64 billion. 

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Net debt increased by about $4 billion to almost $27 billion, primarily due to a plunge in operating cash flow to $2.83 billion, which the company attributed to movements in working capital.

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BP has been lagging significantly behind its oil and gas peers. After several years of poor performance, and amid intense pressure from Elliott, the company in February announced a major pivot back to fossil fuels, slashing clean-energy spending.

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Elliott has called on BP to deepen spending cuts, make further divestments and build up more cash. The investor wants BP to target $20 billion in free cash flow by 2027, which is roughly 40% higher than the company’s current goal.

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BP said that its Executive Vice President for Strategy, Sustainability and Ventures Giulia Chierchia is leaving the company and will not be replaced in the role. She was an architect of the company’s previous strategy for a rapid transition to clean energy and her exit seems to be a nod to at least one of Elliott’s demands.

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(Updates with analyst comment in fourth paragraph.)

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