BP (LSE:BP.) shares are on the move as management switches strategy. Despite previously targeting an ambitious transition from oil & gas production to renewables, leadership has now come out to say the company had gone “too far and too fast”. And the impact of this is partially reflected in its lacklustre performance over the last 12 months.
BP shares are down roughly 12% compared to rivals such as Shell, who saw its valuation rise by 4% over the same period. That means those who invested £5,000 in March 2024 now only have a position worth £4,400. And while dividends have helped offset this decline, the company’s by no means keeping ahead of its parent index, the FTSE 100.
But with shares moving downward and management shaking things up, does the current stock price present a potential entry point for opportunistic investors? And if so, how much money could be made by this time next year?
Oil & gas back in focus
Until recently, BP intended on spending $6bn-$8bn on its transition towards renewables. Now, the budget’s been slashed to just $1.5bn-$2bn, with at least $800m dedicated to low-carbon energy sources such as wind and solar.
Meanwhile, over on the oil & gas side of the business, capital spending’s expected to increase as management aims for a production of up to 2.5m barrels of oil equivalents per day (boepd) by 2030. For reference, BP’s output landed at 2.3m boepd in 2024.
Management’s also begun announcing cost-cutting initiatives including a reduction in share buybacks as well as total capital expenditures. This all comes paired with the planned sale of numerous renewable energy assets to raise funds and pay down debt. In fact, the firm’s specifically stated it’s aiming to bring net debt down from $23bn to between $14bn and $18bn.
Considering the current interest rate environment, deleveraging the balance sheet sounds like a prudent move. But regardless, this U-turn in strategy has understandably created some uncertainty among investors.
What’s next for the firm?
Despite the shift in approach, renewables are still a core part of BP’s strategy, with biogas, biofuels, electric vehicle recharging stations, carbon capture, solar, and wind playing a vital role in the firm’s long-term approach. And BP’s still aiming to reduce its carbon emissions by at least 45% by 2030.
The reaction from institutional analysts appears to be relatively positive. While unpopular among environmentalists, the expected reduction in net debt is expected to provide a far more financially sustainable approach to achieving net zero emissions in the long run.
So what can shareholders expect over the next 12 months? The latest analyst forecasts suggest the stock’s likely going to remain stable with a price target of 464.29p. That’s about 7% higher than current levels, so not much growth is expected.
Overall, such expectations seem realistic. After all, due to the incoming asset sales, total production for 2025’s actually expected to fall year-on-year before ramping back up. In the long run, I believe BP will remain a crucial player within the energy sector. But I’m not rushing to buy shares today, given the slow year that appears to lie ahead for this enterprise.
This post was originally published on Motley Fool
