BP doubles down on oil and gas, cuts renewable investments in strategy reset

British oil giant BP (BP) is pivoting its focus back to its core business of oil and gas while lowering spending on renewables.

On Wednesday, the British energy giant announced it will increase oil and gas investments to $10 billion per year and target divestments to support a stronger balance sheet.

"Today we are fundamentally resetting our strategy ... very much going back to our core strengths and focusing on things we're known for and things that we're really good at," BP CFO Kate Thomson told Yahoo Finance in an interview.

"We're reallocating capital, we're reducing costs, and we're announcing a material divestment program," she added.

BP's move back toward its traditional business was highly anticipated by Wall Street. The company has come under increasing activist investor pressure to put profits before climate initiatives. The question is whether the steps are enough to appease investors.

On Wednesday, shares declined more than 2% in premarket as investors digested the strategic plan.

"In terms of our long-term shareholders ... we're really expecting them to be very pleasantly surprised and positive about all of the changes when you package them together," said Thomson.

Under its new plan, BP intends to announce up to $20 billion in divestments by 2027. That includes a strategic review of its Castrol lubricants unit, which was announced on Wednesday. The company is also considering bringing a partner into its solar unit, Lightsource BP, to help boost returns.

BP intends to reduce its net debt between $14 billion and $18 billion by the end of 2027. Meanwhile, share buybacks for the first quarter are forecast to come in anywhere between $750 million and $1 billion, a reduction of the fourth quarter's $1.75 billion.

BP stock has lagged among the world's super majors, with shares up 6% over the past five years compared to a rise of 113% for ExxonMobil (XOM), 64% for Chevron (CVX), 51% for Shell (SHELL), and 40% for TotalEnergies (TTE).

Some investors have criticized the oil giant for a major strategy shift announced in 2020, which assumed fossil fuels were on their way out. That year, BP became the first oil giant to embrace net zero emissions by 2050. The company set targets to cut oil and gas output while increasing renewable energy production by 2030.

But that climate-friendly strategy came under increasing scrutiny as profits declined in 2023 and 2024.

Last year, a British-based activist hedge fund said the company's green energy initiatives were "irrational" and had "quite understandably, depressed the value of BP's share price."