BP’s decision to scrap buybacks may be painful in the short run, but by prioritising production growth over shareholder payouts it can begin to repair its shaky financial footing.
Cutting buybacks marks the most significant shift in BP’s (BP.L) financial framework since it halved its dividend in August 2020 following the pandemic-driven collapse in oil prices.
The move, along with other cost-cutting and divestment plans, should go a long way toward bolstering BP’s weakened finances and would better position the company to take advantage of its strong production outlook.
There could be wider industry implications too, if a more financially sound BP starts to attract interest from reserve-hungry rivals like Shell as a takeover target.
The timing of the buyback policy announcement suggests Chairman Albert Manifold and the board are keen to “clear the decks” ahead of the arrival of new chief executive Meg O’Neill in April, following the abrupt departure of Murray Auchincloss last December.
While this latest move was poorly received by investors, with BP shares falling by as much as 5% after the decision was announced on Tuesday, it’s a much-needed step considering the sorry shape of the British energy company’s balance sheet.
Suspending buybacks, which totalled $4.5 billion in 2025, will help BP rein in net debt of $22 billion and reduce it to the $14 to $18 billion target the company has set for the end of 2027.
BACK TO PETROLEUM
BP’s financial strain stands in stark contrast to the impressive rebuilding of its oil and gas operations since 2024, when Auchincloss began reversing his predecessor Bernard Looney’s failed attempt to transform BP into a renewables champion.
BP’s oil and gas production averaged 2.3 million barrels of oil equivalent per day (boed) in 2025, broadly flat year-on-year, supported by the start-up of seven new projects, including in the Gulf of Mexico. It aims to grow production to as much as 2.5 million boed by 2030.
The company is also developing several major projects that should support production into the next decade, including the Tiber-Guadalupe and Kaskida projects in the Gulf of Mexico and the redevelopment of Iraq’s Kirkuk oilfield. It also made 12 oil and gas discoveries last year.
Crucially, BP revealed on Tuesday that its giant Bumerangue discovery in offshore Brazil contains an estimated 8 billion barrels of oil, making it one of the world’s largest discoveries in recent years. Further appraisal drilling is planned for later this year.
Consultancy Wood Mackenzie estimates BP can keep production largely flat between 2025 and 2035 at around 2.35 million boed based on current discoveries and projects under development. That is no small achievement given the need to offset natural field decline, which averages around 5% globally.
BP did not disclose its year-end 2025 reserves, but said it replaced 90% of the oil and gas it produced, implying a modest decline from the 6.2 billion barrels of oil equivalent reported at the end of 2024. Importantly, this does not include the Bumerangue discovery.
SHELL’S PRODUCTION GAP
In many respects, BP is the mirror image of its larger British rival Shell (SHEL.L).
Under CEO Wael Sawan, who took office in 2023, Shell has become a far leaner and more efficient company, slashing more than $5 billion a year from its cost base. That has been achieved through thousands of job cuts and the prioritisation of the highest-return activities, chiefly oil and liquefied natural gas, resulting in the closure of low-carbon businesses and less efficient fossil fuel assets.
Shell has also lowered its annual capital expenditure target to $20–$22 billion from $22–$25 billion previously. But that discipline has come at a cost. UBS estimates that just 7% of Shell’s capex is now directed toward growth, the lowest share among European majors.
As a result, Shell’s oil and gas production fell 1% in 2025 to 2.8 million boed.
More worrying is the decline in reserves. Shell’s oil and gas reserves dropped to a record low 8.1 billion barrels in 2025, from 8.9 billion barrels in 2024.
Reserves, and particularly the ratio of reserves to current production known as “reserve life”, are a key indicator of long-term sustainability in the energy industry. While investors paid less attention to reserves earlier this decade amid enthusiasm for the energy transition, they have returned to centre stage now that the outlook for fossil fuel demand has brightened.
Shell’s reserve life fell to eight years in 2025 from nine years in 2024, according to Reuters calculations.
Shell’s production from its current portfolio could fall by as much as 800,000 boed over the next decade, based on Wood Mackenzie estimates.
Sawan himself acknowledged in an analyst call last week that the company faces a production gap after 2030.
Shell has two main levers to reverse the decline. It can ramp up exploration spending, a high-risk, high-reward business that can take years to deliver. Alternatively, it could acquire new resources.
That revives a question that has tantalised markets for years: will Shell try to scoop up BP?
With BP’s market value of around $100 billion and Shell’s $220 billion, a combination of the two highly diversified companies would be hugely complex, and any deal would face significant regulatory hurdles.
Yet BP’s improving production outlook and resource base could help Shell plug its post-2030 gap and narrow the distance between its portfolio and those of its far larger U.S. rivals, Exxon Mobil (XOM.N) and Chevron (CVX.N).
Investors may not welcome BP’s buyback suspension, but given the options the company faces, this move was likely inevitable and – in combination with its growth strategy – possibly shrewder than the market is giving it credit for.
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