How a Devastating Oil Spill and Bold Green Bet Brought BP to the Brink

BP Plc (formerly known as British Petroleum), the century-old energy giant once key in developing oil fields in the Arab world, has become a potential takeover target. Its domestic rival Shell is reportedly assessing the feasibility and strategic merits of acquiring BP.

According to Bloomberg, the Netherlands-listed Shell is waiting for BP’s shares to fall further and for oil prices to drop more before deciding whether to proceed with a bid. Amid pressure from US President Donald Trump's tariffs and other geopolitical shocks, Brent crude prices have dropped over 20% this year, falling to $60.50 per barrel.

Meanwhile, BP's shares have been trading around $350 apiece on the London Stock Exchange down over 13% year to date. Once known for delivering high returns, BP’s stock has plunged more than 30% over the past 21 months due to rising debt, leadership upheaval, and mounting pressure from activist investors.

The company is currently undergoing a strategic “reset”, under which it plans to divest non-core units and refocus on its oil and gas business.

What Went Wrong for BP?

BP traces its origins to 1908, during the early discovery of oil in Iran. The company as it exists today was shaped by a series of transformations, notably in 1954 when the Anglo-Persian Oil Company was rebranded as the British Petroleum Company.

By 2012, BP reported consolidated sales of $396 billion, global proven reserves of 17 billion barrels of oil equivalent, and a workforce of over 83,900 employees. According to Forbes, BP reached its highest-ever market valuation of $152.6 billion in early 2018, but this has since fallen to $74.1 billion as of May 5, 2025.

Analysts attribute BP's decline to three major events in the last two decades: the 2010 Gulf of Mexico oil spill, its 2020 pivot to renewable energy under then-CEO Bernard Looney, and its exit from a significant stake in Russian state-owned company Rosneft following the Ukraine war.

On April 20, 2010, BP-operated Deepwater Horizon suffered a catastrophic blowout in the Gulf of Mexico, resulting in the largest marine oil spill in US history. The disaster killed 11 workers and released approximately 206 million gallons of crude oil, causing vast environmental damage. BP faced multiple lawsuits and, in 2012, agreed to pay a record $4.5 billion in criminal fines and penalties. Total costs related to the spill had exceeded $65 billion by 2018, and the company continues to pay around $1 billion annually in related expenses. The incident severely damaged BP’s global reputation.

A 2019 report found that BP had emitted 34.02 billion tonnes of CO2 equivalent since 1965—ranking it the sixth-highest global emitter during that period. Other major contributors included Chevron, Exxon, and Shell. Combined, these companies accounted for over 10% of global carbon emissions since 1965, according to the Climate Accountability Institute.

Under increasing pressure from investors and climate activists, BP announced plans in 2020 to become a net-zero emissions company by 2050. Under Looney’s leadership, the company committed to reducing oil and gas production by 40% over the following decade, while significantly increasing investments in renewables, including wind, solar, and bioenergy. At the time, BP was producing 2.6 million barrels of oil equivalent per day (boe/d) and planned to cut this to 1.5 million boe/d. Its refining throughput was projected to drop from 1.7 million b/d in 2019 to around 1.2 million b/d.

BP also announced a tenfold increase in low-carbon investments to around $5 billion annually by 2030 as part of its net-zero goals.

While high energy prices following the 2022 Russia–Ukraine war boosted BP’s revenues, the company continued to accumulate debt to fund its capital expenditure on renewables. By 2024, BP had amassed $23 billion in total debt. An S&P Global report noted that the company’s funds from operations (FFO) to debt ratio stood at just 41.9% by the end of 2023—significantly lower than peers like Chevron, Total, and Shell, all of whom reported figures above 75%. A lower FFO-to-debt ratio means a company has less cash available to pay off its debt, which signals higher risk to lenders.

At the same time, BP came under intense scrutiny from the UK government and the public over its ties to Russian oil major Rosneft. Following President Vladimir Putin’s invasion of Ukraine in 2022, BP exited its 19.75% stake in Rosneft, resulting in an estimated loss of up to $25 billion. Both Bernard Looney and former CEO Bob Dudley resigned from Rosneft’s board with immediate effect.

BP’s 2023 net profit halved from $27.7 billion in 2022 to $13.8 billion, while annual revenue dropped 10% to $187.4 billion. Profit margins shrank from 7.3% to just 0.2%.

Leadership Turmoil and Strategic U-Turn

In September 2023, CEO Bernard Looney resigned after failing to fully disclose past personal relationships with colleagues, violating BP’s code of conduct. The revelation led to an internal investigation and the forfeiture of approximately $41 million in compensation. Following his departure, CFO Murray Auchincloss was appointed interim CEO and later confirmed as permanent CEO on January 17, 2024.

Faced with declining earnings and mounting debt, Auchincloss reversed BP’s green energy strategy in February 2025. The company announced a “fundamental reset” of its transition to renewables. Key changes included increasing oil and gas investments to $10 billion annually—a 20% rise from previous levels, cutting renewable energy investments to $1.5–2 billion per year, reducing total capital expenditure to $13–15 billion per year through 2027 and improving capital efficiency and maintaining shareholder returns.

The company aims to grow its free cash flow from $8 billion in 2024 to $13.5 billion by 2027 (assuming oil prices remain between $70–75 per barrel), raise returns on capital from 12% to over 16%, and return 30–40% of cash to shareholders via dividends and buybacks.

Additionally, BP plans to divest $20 billion in assets by 2027. This includes its Castrol lubricants business and parts of its renewable energy unit, Lightsource BP.

This pivot comes as Western nations increasingly abandon aggressive clean energy goals in favour of energy security, and with Donald Trump’s return to the White House promising a rollback of Biden-era green policies in favour of his “Drill, Baby, Drill” strategy. Meanwhile, activist investor Elliott Investment Management acquired a 5% stake in BP and is reportedly pressuring the company to focus more on traditional energy and profitability. Elliott is also said to be dissatisfied with cuts to capex and has called for more cost cutting measures.

“This strategy pivot is prompted by subpar returns from these green energy projects and the performance of BP’s shares, which have significantly lagged oil major peers such as Exxon. Instead, the company will refocus its efforts on growing its oil and gas production, increasing its capital spending in these operations by 20% to $10 billion per year between 2025 and 2027,” said TL Tsang, Senior Bond Analyst at Gimme Credit, an independent corporate bond researcher from New York.

Earnings Slide Continues in Q1

BP reported first-quarter 2025 results on 29 April, revealing a continued decline in profitability. Net profit fell to $1.4 billion, down from $2.7 billion in Q1 2024. Revenue dropped 4% year-on-year to $46.9 billion.

Hydrocarbon production declined 16.5% year-over-year to 764,000 boe/d, largely due to asset divestments in Egypt and Trinidad. Net debt rose to $27 billion from $23 billion at the end of Q4 2024, due to lower operating cash flow and delayed proceeds from divestments.

BP’s management plans to sell up to $4 billion in assets in 2025, with the bulk of proceeds expected in the second half of the year.

"A sharp pivot away from low-carbon growth and a renewed focus on hydrocarbons should eventually lead to a valuation rebound, in our opinion. However, the devil lies in the details of the execution,” said a DBS Group Research note dated April 5.

The note by analyst Suvro Sarkar noted that BP is exposed to significant macroeconomic risks, where earnings depend on price and demand for crude oil and natural gas. And, given BP's global presence, it is exposed to significant forex risk. Regulatory risks like windfall taxes on oil profits may dent numbers as well. There are material operational risks as well, with the Deepwater Horizon oil spill leaving a permanent scar.