BP is not getting enough credit for its turnaround 

Errant schoolchildren will know the feeling. Even when they make an effort to mend their ways, they are regarded with wary suspicion. So it is with BP. However much the beleaguered UK oil major seems to have improved, investors seemingly remain lukewarm over its turnaround strategy.

BP’s shares fell 6.5 per cent on Tuesday after it axed its share buyback programme amid lower oil prices. Others have done this without such opprobrium. When French rival TotalEnergies announced a reduction in share buybacks last year, it was met with little more than a shrug by the market.

True, BP has stopped purchasing its own stock rather than trimming the amount. And investors may have been disappointed by the fact that, despite the group spending less on returns to shareholders, it did not dial down its estimate of the amount of net debt it expects to have in 2027. But while painful, conserving cash is the right thing to do for the company, which is relatively highly leveraged.

BP shares have mostly kept pace with European peers Shell, Total and Italy’s Eni since last summer, yet its valuation as a multiple of expected ebitda is lower than theirs and the gap has widened.

That’s despite the fact that BP looks better placed now than it did then, thanks in no small part to its largest discovery in 25 years off the coast of Brazil. The giant Bumerangue field contains an estimated 8bn barrels of liquids, says the group. Citigroup analysts reckon the net present value of this asset alone could be as much as $15-20bn — significant for a company with almost $160bn of enterprise value. BP could raise money by selling a share of that asset, given how bad the industry as a whole has been at finding new oilfields.

On top of that, BP has made decent progress in its asset-shedding programme, closing a deal to sell 65 per cent of its US lubricants business Castrol to Stonepeak for a net cash inflow of about $6bn. Its governance has been spruced up, too: new chief executive Meg O’Neill joins on April 1, and new chair Albert Manifold was appointed at the end of July.

True, BP is nowhere near the top of its set. Its debt including leases and hybrid bonds is relatively high. Following the suspension of its buyback, cash returns to shareholders — in the form of its dividend — will be 5.7 per cent of its market value, according to Berenberg analysts. Clawing itself back into investors’ good books is a hard slog. Still, BP is actually trying. It deserves to cast off its image as the class miscreant.

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