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For years, BP (LSE: BP.) prioritised share buybacks at the expense of balance sheet strength, while its share price consistently underperformed its peers. With buybacks now paused and strategy refocused, could this mark the start of a far leaner business?
Full-year results
The strategic reset is visible in the numbers. The oil major’s fourth-quarter performance was broadly in line with expectations, but it also underlined why balance sheet repair has taken priority over continued share buybacks.
Underlying replacement cost profit fell to $1.5bn for the quarter, down from $2.2bn previously, reflecting lower upstream realisations, production mix effects and refinery disruption.
Reported results swung to a $3.4bn loss, largely due to around $4bn of non-cash impairments. A significant portion came from its low-carbon assets, including Archaea, its biogas operations, and offshore wind projects.
Cash flow remained strong. Operating cash flow of $7.6bn comfortably covered the dividend, which was held at 8.32 cents per share. Similarly, net debt reduced to $22.2bn, following a number of divestments throughout the year.
If the company can generate this level of cash in a weak oil price environment, what happens if oil demand proves far more durable than the market expects?
Peak oil demand
For more than a decade, investors were told oil demand would peak by 2030. That assumption underpinned valuation models and political rhetoric – and it’s now breaking down.
In its World Energy Outlook 2025, the International Energy Agency quietly abandoned the idea of an imminent peak. Its latest projections show oil and gas demand rising well into the 2050s. That’s not a tweak – it blows a hole in one of the most widely held assumptions in energy markets.
The reason is simple: the world needs energy, delivered instantly and at scale. Homes need heat, economies need growth, and AI-driven data centres are driving surging power demand that renewables alone cannot meet.
Nuclear can scale long term, but deployment is too slow; over the next decade, natural gas is the only viable bridge.
Solar, wind and hydrogen are growing, but they remain additive, not substitutes. Fossil fuels still dominate the global energy mix.
This matters for BP. As the peak-oil narrative fades, it’s refocusing on upstream. Six new projects in 2025 added 150,000 barrels per day, and the huge Bumerangue discovery in Brazil ensures a robust pipeline for years to come.
Risks
The main risks are political and financial. With oil and gas strategically essential, governments may push for higher taxes, royalties, or regulatory burdens, especially in regions where the industry is heavily scrutinised.
Capital allocation is another key challenge. Buybacks may have been suspended, but hitting the net debt target of $14bn-$18bn cannot rely solely on divestments like Castrol. The company may need to shrink its asset base significantly before it can credibly signal long-term growth again.
What’s the verdict?
BP doesn’t have a cash flow problem, but the balance sheet still carries assets written down from past missteps. Repair will weigh on investors in the short term.
Personally, I continue to add to my position gradually, reflecting my view that hydrocarbons remain central to global energy and that the company’s strategy reset positions it for a leaner, more resilient future.
