ii view: BP reveals $5bn hit on green energy

Fourth-quarter trading update to 31 December

• Expects broadly flat upstream production compared to Q3
• Expects energy transition write-downs of between $4-to-$5 billion
• Expects net debt of between $22-to-$23 billion, down from $26.1 billion in Q3

ii round-up:

BP (LSE:BP.) today detailed expectations for broadly flat quarterly production with the oil major also announcing a significant write-down of previous investments made in its green energy-related business.

Fourth-quarter upstream production is expected to prove little changed from the third quarter, with flat oil output sat alongside lower gas and low-carbon energy production.

A write-down charge of up to $5 billion (£3.7 billion) is being taken in relation to its energy transition gas and low-carbon business. However, the after-tax adjusting item will not impact underlying replacement cost profits.

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Shares for the FTSE 100 giant fell 1% in UK trading having come into this latest news up by a tenth during 2025. That’s similar to rivals Shell (LSE:SHEL)and Exxon Mobil Corp (NYSE:XOM). The FTSE 100 index rose 21.5% last year. Brent crude oil fell 18% with natural gas gaining 1.5%.

This latest update comes just weeks after BP announced former Exxon Mobil executive Meg O’Neill as its new chief executive come early April.

Brent crude oil averaged $63.73 per barrel during this latest quarter, down from $69.13 in the prior third quarter. US gas averaged $3.55 per Million Metric British Thermal Units, up from $3.07 in Q3.

BP’s year-end net debt is expected to come in at between $22 to 23 billion, down from $26.1 billion in late September. The reduction is aided by $5.3 billion of business disposal proceeds generated during 2025 and ahead of management’s earlier year $4 billion estimate.

BP’s effective tax rate for 2025 is expected to be around 42%, up from a previous estimate of 40% and impacted by changes in the geographical mix of profits.

Fourth-quarter and full-year results are scheduled for 10 February.

ii view:

Headquartered in London, BP operates in more than 60 countries. Most of its exploration and production comes from the US, North Africa, the Middle East and Latin America. Oil production and operations generated most profits at close to half during its last financial year. That was followed by gas and low-carbon energy at around a third, with customer and products or the downstream forecourt retailing business the balance of almost a fifth.

For investors, previous moves to ramp up green energy production have been followed by a refocus back towards higher profit-making fossil fuels with a write-down of low-carbon energy investments made now being made. Concerns regarding reduced energy demand and a gut of supplies persist given less cooperative global trade policy. An estimated future price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while changes in strategy and a push to reduce net debt previously saw the quarterly share buyback programme halved to $750 million from $1.5 billion.

• Investment outlook: expert opinion, analysis and ideas
• 5%-plus yields: fund and investment trust ideas in 2026
• The shares attracting fund managers at start of 2026

To the upside, a concentration on higher profit-making businesses is now being made with the new pending CEO potentially further reinvigorating strategy. More than 10 exploration discovery successes came in 2025, underlining an emphasis on operational improvement. A push towards a simpler business and resultant business disposals continue to see group net debt falling, while shareholder returns remain important given a near-term focus on the dividend and policy to increase the payment by at least 4% a year.

For now, and while the refocus on fossil fuels will not have pleased all shareholders, a forecast dividend yield of around 5.5% will likely keep at least income-oriented investors interested.

Positives:

• Diversity of operations
• Pursuing cost savings

Negatives:

• Climate change concerns persist
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold