Refining margins drag down, BP PLC-Spons Q4 profits plummet, annual profits fall below $9 billion | Earnings report insights

British oil giant BP has significantly declined due to falling refining margins and announced a $1.75 billion stock buyback, promising to "fundamentally" adjust its strategy.

On Tuesday, BP reported its fourth quarter and full-year results for 2024, showing a substantial drop in profits, with weak refining performance dragging down overall results.

Specifically, BP's fourth quarter profit was $1.169 billion, also below the average analyst expectation of $1.3 billion, a year-on-year drop of 61%, marking the lowest since the fourth quarter of 2020. BP's full-year profit fell 35% to $8.9 billion, below the average analyst expectation of $9.21 billion. This performance also lagged behind other oil giants, increasing the pressure to drive change.

The company's quarterly earnings were mainly affected by declining refining margins, with BP's refining business reporting an adjusted loss of $302 million in the fourth quarter, and the average refining margin was $13.1 per barrel, down from $18.5 per barrel last year. The company expects refining margins to remain low in the first quarter of 2025.

Additionally, BP's large but opaque trading business failed to provide support during this period of market weakness, with weak contributions from oil trading and average performance in gas trading.

BP CEO Murray Auchincloss pledged to "fundamentally reset" the company's strategy. As noted in previous articles, activist investor Elliott has taken a stake in BP, which may increase pressure on the company's board and strategic changes.

Despite the poor performance, BP announced a $1.75 billion stock buyback for the fourth quarter and maintained a dividend of $0.08 per ordinary share. However, the company stated it would review its financial guidance, including expectations for stock buybacks and capital expenditures in 2025. RBC Capital Markets analyst Biraj Borkhataria expects that the scale of buybacks after the first quarter may be reduced.

Moreover, BP is cautious about its outlook, expecting upstream production to decline year-on-year in the first quarter of 2025, mainly due to the previously announced divestitures of assets in Egypt and Trinidad and Tobago. Additionally, the company expects refining margins and fuel margins to remain low. Jefferies analyst Giacomo Romeo pointed out that "the outlook for 2025 provided by the company today is slightly negative, mainly due to the guidance on production decline."

Currently, BP faces immense pressure to reverse its long-term poor performance, with the investor day on February 26 being a key moment for Auchincloss to showcase his vision for BP. The market is eager to see significant changes, including adjustments to low-carbon energy strategies, enhanced cost control, and increased oil and gas production. Whether BP can get back on track through a strategic reset remains to be seen