BP’s newly appointed CEO, Meg O’Neill, has announced her intention to revert the company to its previous structure, a model that was abandoned six years ago during an unsuccessful attempt to pivot towards a sustainable energy approach.
In a communication to employees, O’Neill outlined a plan for the 117-year-old company to adopt a “simpler, stronger” dual-business framework, which will consist of an upstream segment dedicated to oil and gas production and a downstream segment focused on refining, fuel distribution, and retail operations.
“To enhance BP’s value and simplify our operations, we aim to establish a clear distinction between upstream and downstream activities,” O’Neill stated.
This restructuring initiative marks a significant shift away from the legacy of former CEO Bernard Looney, who, in 2020, redefined BP’s structure by introducing a low-carbon energy division as part of an ambitious vision to transform BP into a green energy leader.
The focus on green initiatives raised apprehensions among BP’s investors and attracted the attention of activist investor Elliott Management, which urged the company to realign its focus on fossil fuels and streamline its organizational structure.
Following O’Neill’s unexpected appointment late last year, she officially began her role in April as BP’s fifth CEO since 2020, vowing to provide “clear direction and consistency” for the company amidst the complexities arising from the ongoing conflict in the Middle East.
This conflict has triggered one of the most significant energy supply crises in history, yet BP anticipates “exceptional” earnings from its oil trading operations, capitalizing on the volatile energy markets influenced by the ongoing US-Israeli tensions with Iran.
Energy traders are currently experiencing considerable market fluctuations, particularly following Iran’s effective closure of the Strait of Hormuz shipping route.
On Tuesday, BP announced that refining margins had improved, and it expects “exceptional” results from oil trading in the first quarter of the financial year.
Last week, BP’s UK competitor, Shell, also projected “significantly higher” profits from oil trading for the same quarter.
Analysts have been adjusting their profit predictions, with Citibank increasing its estimate for BP by 20% to $2.6 billion in adjusted net income for the January to March period.
Brent crude oil prices have surged significantly, climbing from approximately $61 per barrel in January to a peak of $119.50 several weeks ago following the Strait’s closure. On Monday, the global oil benchmark exceeded $100 per barrel again, before decreasing by 1% to $98.28 on Tuesday.
According to Reuters, the average price of Brent crude was around $78 per barrel during the January to March quarter, compared to $63 in the previous quarter and $75 during the same timeframe last year.
JP Morgan Chase analysts predict that oil prices will likely remain above $100 per barrel in the second quarter, while Goldman Sachs recently lowered its forecast for average prices from $99 to $90 per barrel.
BP’s update coincided with the International Energy Agency’s (IEA) revision of its global oil demand forecast for this year. The IEA’s latest oil market report indicated that both supply and demand could shrink due to the Middle Eastern conflict.
The IEA now predicts a reduction of 80,000 barrels per day in oil demand for this year, a reversal from last month’s estimate that anticipated an increase of 640,000 barrels per day. This would mark the first annual decline in oil demand since the pandemic in 2020.
The agency also reported a significant drop in global oil supply, which fell by over 10 million barrels per day in March to 97 million. Ongoing assaults on energy infrastructure in the Middle East and restrictions on tanker movements through the Strait have resulted in unprecedented disruptions.
BP projects that its total oil and gas production will remain relatively stable in the first quarter of the year. The refining margins rose to $16.9 per barrel in the first quarter, up from $15.2 in the preceding three months, which is expected to enhance earnings from refined products by between $100 million and $200 million.
O’Neill is set to address shareholders at the upcoming annual meeting on April 23, and BP plans to release its first-quarter financial results on April 28.
