BP to report on cost cuts as activist investor Elliott steps up pressure
Status update on plan to save $5bn comes as US hedge fund pushes energy major to go even further
BP will reveal on Tuesday its progress on a $5bn cost-cutting plan, as activist investor Elliott Management increases pressure on the energy major to rein in operating expenses more aggressively.
The US hedge fund, which has built a 5 per cent stake in BP, has made operating cost reductions a central focus of its campaign at the UK group, which it is urging to aim for $20bn of free cash flow in 2027.
Elliott wants Murray Auchincloss, BP chief executive, to add another $5bn of cost savings to the target he announced in February of $4bn-$5bn of reductions by 2027 from a 2023 baseline.
The hedge fund has “identified tens of thousands of BP support staff globally” as an example of the company’s bloated cost base, according to one person familiar with Elliott’s thinking. BP declined to comment on the number.
BP has already cut $750mn of costs towards its target in 2024, and Auchincloss has pledged a detailed progress report alongside the company’s half-year results on Tuesday, five months after unveiling a “fundamental reset” to its strategy aimed at reviving its performance.
The company is looking to reach its savings target through a combination of streamlining supply chains, job cuts, exiting parts of the business such as hydrogen, and divestments — including selling BP’s onshore wind assets and spinning off its offshore wind arm.
But Elliott has questioned the credibility of BP’s plan. The hedge fund estimates that the net new cost savings in the plan will be closer to $1bn after divestments and previously realised savings are excluded and new costs from growth are added, and believes BP’s general and administrative expenses are far too high.
Not all investors are aligned with Elliott’s approach. David Cumming, head of UK equities at Newton Investment Management, said “BP still needs to demonstrate better operational improvement overall, but cost control is not the key issue”.
Another major investor said that asking BP for a further $5bn of cuts risked derailing its future growth. “Starving the company of capex and opex in the near term may not be the optimal outcome for the long-term health of the company,” they said. “I would guess there is some upside to BP’s stated target but doubling it to $10bn seems overly aggressive.”
BP’s distribution and administration expenses, which include payroll, overheads and product distribution, have totalled nearly $69bn over the past five years, $9bn more than Shell, despite the latter generating significantly higher revenues and earnings.
However, a person close to BP suggested the two companies’ numbers could not be compared because of accounting differences.
BP’s employee numbers have risen 58 per cent to 100,500 since 2020, as it absorbed roughly 30,000 workers by acquiring the TravelCenters of America fuel station chain and taking full ownership of Brazilian ethanol business Bunge Bioenergia, compared with a 10 per cent rise in Shell employees in the same period to 96,000.
“They are going in two completely different directions,” said Lydia Rainforth, an analyst at Barclays. “Shell has clearly made more underlying progress on any definition.”
BP has announced 4,700 job cuts this year from its roughly 40,000 office-based staff, and a reduction of 3,000 contractors. Kate Thomson, BP’s chief financial officer, said in April that the company was also assessing a further 3,400 contractor roles.
A number of senior executives have also departed, as BP pivots away from its ambitious energy transition goals back to its core oil and gas business.
Giulia Chierchia, the former head of strategy, and Richard Bartlett, head of electric vehicle charging unit BP Pulse, both left in June. Tracey Clements, who led the European fuel and convenience retail business, departed in January.
Shell said at its second-quarter results last week that it had made $800mn of cost savings in the first half of the year, of which only $300mn came from divestments. Wael Sawan, chief executive, said the company had made $3.9bn of reductions since 2022, “faster than maybe I expected that we were going to get there”.
Other oil majors are also moving to slash costs. Chevron said this year that it planned to cut up to 20 per cent of its workforce and reduce annual costs by $5bn to $7bn by the end of 2028.