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Investing.com — BP (NYSE:) numbers fall short of expectations set under the company’s “reimagining energy” strategy introduced in 2020, according to Barclays (LON:) analysts.
The energy giant, which aims to become an Integrated Energy Company (IEC), has failed to deliver cash, cost control and returns from major low-carbon investments.
“2025 will mark five years since BP set out its ‘reimagine energy’ strategy and, simply put, BP is not delivering the numbers we expected,” said analysts led by Lydia Rainforth.
Barclays highlighted that BP’s cost base has soared, with cash costs set to reach $41.8 billion in 2023, up $9.2 billion from 2019. This has called into question the company’s previous target of achieve $2 billion in savings.
Although BP aims to cut another $2 billion by 2026, analysts warned that tangible progress remains elusive. Additionally, BP’s recent acquisitions, including US-based TravelCenters (NASDAQ:) and biogas company Archaea, have not yet provided sufficient returns.
“In theory, BP has grown the business by adding TravelCenters of America and Archaea, but it is not at all clear that these have actually been “good costs” added, and the cost base in the last two years has reached its highest level since 2011. /2012”, the analysts explained.
Furthermore, BP’s low-carbon investments, which amounted to $16 billion in recent years, have not yet produced the expected growth in cash flow. Barclays emphasized the need for BP to shift its focus from “origination” to delivery, stating that these assets must start generating tangible returns to close the $2 billion cash flow gap compared to its original plan for 2025. .
“The jaws of cash must begin to widen substantially,” the note emphasizes.
The energy giant’s upstream business also faces challenges. Despite positive signs, such as potential growth in Argentina through its stake in Pan American Energy, overall upstream margins have not improved as planned.
CEO Murray Auchincloss acknowledged that oil demand has exceeded expectations, which could lead to a revised 2030 production target, but this comes with the need for greater discipline in capital allocation.
Despite the challenges, Barclays maintains its Overweight rating on BP shares, citing undervaluation compared to peers. The company’s shares are trading at a free cash flow yield of 15% to 18% for 2024/2025, a 7% discount to European competitors. However, significant improvement in operational execution is needed to regain investor confidence.
“Going forward, if BP could reduce its low-carbon capex, focus on improving its existing portfolio through the group’s integrated business model and demonstrate tangible returns, the stock could be rerated, in our view, especially given taking into account the relative poor performance year on year. date,” the analysts noted.
“BP needs to be simpler and more focused to deliver greater value.”
