BP is shifting focus back to oil and gas, increasing cash flow and reducing debt
From Morningstar: 2025-06-20 03:44:00
BP has shifted away from its low-carbon investment strategy, increasing oil and gas spending while reducing low-carbon transition spending. This pivot is expected to result in a 20% compound annual growth in free cash flow through 2027 and debt reduction to $14 billion-$18 billion by year-end 2027. The company plans to divest $20 billion worth of assets, including its Castrol business.
Investors should welcome BP’s strategic shift, which aims to strengthen its financial position and improve performance. The company’s pivot back to oil and gas is seen as a positive move that could help boost returns and address underperformance concerns. However, the decision to reduce low-carbon spending may deter ESG-oriented investors.
Morningstar’s fair value estimate for BP is 445p per share, based on the latest oil prices and foreign-exchange rates. This estimate takes into account BP’s strategic pivot and excludes Rosneft’s earnings and value due to uncertainty. The valuation methodology incorporates assumptions for long-term earnings growth, return on new invested capital, and oil prices, with a cost of equity of 9.0% and a weighted average cost of capital of 7.4%. 1. The stock market experienced a significant drop today, with the S&P 500 falling by 3%. This decline was attributed to concerns about rising inflation and interest rates, impacting investor sentiment.
2. In other news, a new study revealed that 75% of Americans are now fully vaccinated against COVID-19. This milestone is seen as a positive step towards achieving herd immunity and reducing the spread of the virus.
3. The latest unemployment report showed a decrease in jobless claims, with only 300,000 new claims filed last week. This is the lowest number of claims since the start of the pandemic, indicating a gradual improvement in the labor market.
4. Researchers have discovered a new species of dinosaur in Argentina, named Llukalkan aliocranianus. This carnivorous dinosaur had a unique skull shape and is believed to have roamed the earth during the Late Cretaceous period.
Read more at Morningstar: BP’s Strategic Shift a Step in Right Direction