BP PLC Earnings - Q4 2025 Analysis & Highlights
BP reported strong operational performance in 2025 with significant progress on its turnaround strategy, including record upstream reliability, major project startups, and substantial cost reductions, while announcing the suspension of share buybacks to strengthen its balance sheet and fund future growth opportunities in a weaker commodity price environment.
Key Financial Results
Underlying replacement cost profit of $7.5 billion in 2025 against a weaker price environment.
Operating cash flow of $24.5 billion for the year, including an adjusted working capital build of $2.9 billion.
Adjusted free cash flow of approximately $13 billion on both a reported and price-adjusted basis, representing approximately 55% growth from the prior year on a price-adjusted basis.
Return on average capital employed of approximately 14% in 2025 on a price-adjusted basis, up from 12% in 2024.
Net debt of $22.2 billion at the end of 2025, which is $800 million lower than at the end of 2024.
Full-year CapEx of $14.5 billion, including a reduction of organic CapEx to $13.6 billion.
Shareholder distributions for 2025 were approximately 30% of operating cash flow and within guidance issued the prior year.
Business Segment Results
Upstream production was held broadly flat on an underlying basis despite reported production being lower than 2024 due to portfolio changes, and exceeded annual guidance from 12 months prior.
Upstream plant reliability and refinery availability both exceeded 96% for the year, setting new records.
Seven major projects were started up during 2025, with five ahead of schedule, bringing approximately 150,000 barrels of oil equivalent per day of the 250,000 barrels expected by 2027 online.
Reserves replacement ratio of 90% in 2025, up from an average of approximately 50% in the previous two years.
Supply, trading and shipping business delivered an average uplift of approximately 4% to BP's returns, extending over the past six years.
Customers segment delivered highest underlying earnings since 2019 with all businesses growing year-on-year.
Downstream delivered a significant step-up in performance with approximately $1.6 billion of structural cost reductions delivered to-date.
Capital Allocation
Dividend per ordinary share of $0.0832 announced, with dividends expected to increase by at least 4% per year.
Share buyback program suspended, with all excess cash fully allocated to balance sheet strengthening.
Capital expenditure tightened to a range of $13 billion to $13.5 billion for 2026, at the low-end of the range previously guided through 2027.
Divestment program of $20 billion announced, with $5.3 billion received in 2025 and $6 billion anticipated from the Castrol transaction.
Expected divestment proceeds of $3 billion to $4 billion in 2026, with proceeds heavily weighted to the second half of the year.
Gulf of America settlement liability payments of approximately $1.6 billion in 2026 and approximately $1.2 billion in 2027, with the liability largely settled by the end of 2032.
Hybrid bonds of $12 billion issued during COVID in 2020 currently receive 50% equity treatment under S&P rules, with ability to reduce by up to 10% in any one year up to a cumulative reduction of 25%.
Operational Performance and Safety
Operational emissions in 2025 were 37% less than in 2019, well in excess of the 20% target.
Methane intensity fell to 0.04%, significantly below the 2025 target of 0.2%.
Well reliability of almost 98% achieved in 2025.
Managed base decline kept comfortably within the 3% to 5% range.
Four colleagues lost their lives in 2025 while working in the US retail business, with two killed in separate incidents struck by passing vehicles during emergency roadside assistance.
Roadside assistance next to active traffic lanes permanently stopped in response to safety incidents.
Combined Tier 1 and Tier 2 process safety events down by approximately one-third compared with the previous year.
Cost Reduction and Efficiency
Structural cost reductions of approximately $2 billion delivered in 2025, bringing cumulative reductions to $2.8 billion to-date.
Cost reduction target increased to $5.5 billion to $6.5 billion by 2027, including expected cost reductions from the divestment of Castrol.
Further structural cost reductions of $1.2 billion to $2.2 billion planned through 2027.
Underlying operating expenditure could reduce to approximately $19 billion to $20 billion by 2027.
Unit production costs in oil and gas maintained at approximately $6 per barrel on average over the last four years.
Customers segment cost performance improved with $700 million of structural cost reductions delivered, bringing the business to the higher end of the second quartile.
Refining cash breakeven reduction of approximately 80% of the $3 per barrel target achieved this year, mostly through commercial optimization and improved availability.
Group central functions achieved an 8% reduction in 2025 through head count reduction in higher cost locations, strategic third-party partnerships, and process simplification.
Exploration and Resource Development
12 discoveries made in 2025, including in the Gulf of America, Namibia, and Brazil.
Bumerangue discovery in Brazil, the largest find in the last 25 years, estimated to contain approximately 8 billion barrels of liquids in place, split roughly 50% oil and 50% condensate.
Appraisal program for Bumerangue expected to start around the end of the year using Transocean's Deepwater Mykonos rig.
Second longest remaining resource life of the majors when benchmarked using Wood Mac data, with 23 years of production at current production levels.
Exploration wells planned in 2026 including in Libya, Angola, Brazil, and the Gulf of America.
Conifer exploration well in the Paleogene expected to spud later in 2026, potentially creating a tieback to Kaskida.
Matsola exploration well offshore Libya currently being drilled, described as the most watched exploration well in the industry.
Kirkuk contract area in Iraq contains 3 billion barrels of oil in place, with the bigger area likely containing 20 billion barrels.
Portfolio Optimization and Divestitures
Castrol strategic review concluded with agreement to sell a 65% shareholding to Stonepeak, with an enterprise value of $10.1 billion and multiples of 8.6 times EV/EBITDA.
Retention of 35% position in Castrol allows BP to continue benefiting from future growth of the business.
Over $11 billion of the $20 billion divestment program completed and announced in one year.
Gelsenkirchen refinery sale intended, with expected cost reductions from this divestment not yet included in targets.
Austria retail sale in progress.
Lightsource bp has interested parties and is under review for potential sale.
Netherlands retail sale completed.
Impairments of approximately $4 billion after-tax recognized in Q4, largely related to transition businesses including biogas and renewables.
Competitive Position and Advantages
Best-in-class ranking according to most recent IPA benchmarks for project execution, with projects starting up and staying up.
Approximately 75% of wells drilled are in the top or second quartile.
Capital productivity improvements in Azerbaijan with long, undulating, horizontal wells reducing dollars per foot of rock contacted.
Lower 48 business improvements including 20% improvement in completion time and 9% improvement in drilling time, allowing the same resources to be unlocked in a year using eight rigs instead of ten.
bpx business with 7 billion barrels of oil and gas equivalent in place and 30 Tcf of gas, with 15 Tcf yet to develop.
bpx returns averaging 45% IRR at $65 WTI and $3.50 Henry Hub.
NPV per acre in bpx ranked either 1, 2, or 3 in the three basins of operation (Permian, Eagle Ford, Haynesville).
First quartile reserves per foot drilled across the three basins where bpx operates.
Technology and Digital Innovation
Wells Advisor AI system created to provide wellsite leaders access to BP's over 100 years of drilling data and knowledge.
Kick detection AI algorithms with 90% success rate detecting small kicks within approximately one minute.
Dynamic digital twins, AI, and automation expanded across the business for real-time reservoir, wells, and facilities monitoring and optimization.
BP operated production increased on average by approximately 2% every year for the last five years while protecting approximately 4% more from going offline.
Financial Guidance and Outlook
Adjusted free cash flow target of greater than 20% compound annual growth through 2027 on track.
Return on capital employed target of over 16% in 2027 on a price-adjusted basis, with confidence in achieving this target.
Net debt target of $14 billion to $18 billion by the end of 2027, with visibility to moving into that range with the expected closing of the Castrol transaction.
2026 production expected to be approximately 2.3 million barrels of oil equivalent per day, broadly flat compared to 2025, an increase compared to prior year outlook.
Reserve replacement ratio target of 100% by the end of 2027.
Three more major projects expected to come online by the end of 2027, with six more projects sanctioned.
8 to 10 projects expected to come online between 2028 and 2030.
Four major projects (Kaskida, Tiber-Guadalupe, Shah Deniz Compression, Tangguh UCC) expected to add another 250,000 barrels of oil equivalent per day of higher margin net peak production.
Paleogene expected to come on in 2029 through 2030 and ramp up, with 10 billion barrels of oil in place and first two projects developing only approximately 600 million.
No guidance provided on the 4% uplift from supply, trading and shipping, though capability and experience within the team expected to continue delivering value.
Guidance for shareholder distributions retired, with dividend remaining the first financial priority.
Strategic Direction and Turnaround
2025 characterized as a year of turnaround with urgent and focused intervention required and good progress made to address underperformance.
Strategic direction confirmed as right with good start in delivering against the plan laid out 12 months prior.
Meg O'Neill arriving as Chief Executive Officer at the beginning of April, with Murray's 34 years of service thanked.
Simpler, stronger, more valuable bp as the goal, with board and leadership team aligned around this objective.
Cultural shift in cost and discipline across BP with focus on every dollar competing within the portfolio and only investing in the very best opportunities.
Capital allocation discipline with significant structural shift from strategy, focused on interrogating confidence in returns and testing downside risks.
Portfolio simplification through difficult decisions on which assets to retain, with continued focus on this going forward.
Macroeconomic Context
Weaker price environment backdrop for 2025 results.
Inflation and business growth costs of approximately $2 billion offset by cost reductions, resulting in underlying operating expenditure reduced by over $700 million since 2023.
