Downward Spiral: How President Trump's Tariff Chaos Affected BP's Financial Health
Plunging BP shares due to scrapped buyback scheme amid a faltering oil market context
Energy goliath BP took a hit to its wallet, slashing its quarterly share buyback to a mere $750 million (£559 million), compared to the whopping $1.75 billion the previous quarter. This rollercoaster ride came courtesy of President Donald Trump's unpredictable tariff policies, playing havoc with oil prices.
In early trading on Tuesday, BP's shares plummeted nearly four percent. The cost of a barrel of Brent crude sank below $70, a drop that created ripples in BP's financial goals.
This financial quarter preceded Trump's "Liberation Day" on April 2, where a wave of tariffs crashed upon all trading partners.
Despite these challenges, BP still struggled as the cash flow from operations hit rock bottom, reaching levels not seen since the fourth quarter of 2020, when the average price of oil lingered around $40.
The FTSE 100 behemoth announced an underlying replacement-cost profit of $1.38 billion. Although this figure exceeded the previous quarter, it paled in comparison to the $1.53 billion anticipated by analysts.
Net debt also swelled by $4 billion compared to the previous quarter. The net income for the first three months of the year nearly halved, amounting to only $1.38 billion. This fell short of the average analyst estimate of $1.64 billion.
Mark Crouch, market analyst at eToro, expressed his views: "BP's Q1 results were predictably lackluster and underwhelming. However, on a positive note..."
BP Facing Intense Scrutiny from Activist Investor Elliott
BP has been subject to intense pressure from activist investor Elliott, demanding that BP tighten the purse strings and offload further assets. Elliott aims to bolster the company's free cash flow to a staggering $20 billion by 2027 - a bump of around 40 percent beyond current objectives.
BP's chair, Hedge Lunch, hinted at his imminent departure in April, citing conflict with Elliott as the main reason. This announcement came after BP sadly canned its ambitious plan unveiled in 2020, which aimed to transform BP from an oil colossus into a green energy titan.
Nearly a quarter of shareholders voted against Lunch's re-election at the annual general meeting, as discontent over scrapping climate targets persisted.
Crouch continued, "With Elliott Management now onboard, tumbling oil prices could potentially work in BP's favor, unveiling the company's hidden weaknesses and emphasizing the critical role fossil fuels still play in its long-term future."
Kate Thomson, BP's chief financial officer, commented on the first-quarter results: "We managed to deliver resilient financial results in Q1 and are making progress in our plans to hit our structural cost reduction target. Our financial framework grants us flexibility in fluctuating economic conditions."
- BP's activist investor, Elliott, is pressuring the company to tighten its budget and sell more assets, aiming to boost the company's free cash flow to $20 billion by 2027.
- BP's chair, Hedge Lunch, announced his imminent departure in April, indicating that his conflict with Elliott was a major factor.
- The scrapping of BP's ambitious 2020 plan to transform from an oil company to a green energy company has persisted as a source of discontent among shareholders.
- Nearly a quarter of shareholders voted against Lunch's re-election at the annual general meeting, evidence of the ongoing discontent.
- Market analyst Mark Crouch suggests that tumbling oil prices could reveal BP's underlying weaknesses and underscore the importance of fossil fuels in its long-term future.
- Despite the financial challenges, including the impact of tariffs and tumbling oil prices, BP's chief financial officer, Kate Thomson, remains optimistic, stating that the company has delivered resilient financial results in the first quarter and is making progress towards its structural cost reduction target.
