Elliott Urges BP to Increase Free Cash Flow to $20 Billion by 2027: Source

Elliott Management, an activist investor, has pressed BP to increase its free cash flow to $20 billion by 2027 from approximately $8 billion last year by implementing substantial cuts in spending and reducing costs, according to a source familiar with the matter on Tuesday. Elliott has raised its holding in BP to slightly more than 5 per cent through derivative contracts, as stated in a regulatory notice on Tuesday, positioning Elliott between leading shareholders BlackRock and Vanguard, based on LSEG data. According to the source, Elliott has engaged with over 20 investors who constitute BP's largest active shareholders.

In March, Reuters stated that Elliott had talked with other BP shareholders about the necessity for increased spending, cost reductions, and possible leadership shifts and also wanted BP to sell its renewable energy sector. BP, which indicated it has received positive feedback from shareholders regarding its strategy, stated in an email that it appreciates constructive input from all shareholders. Elliott chose not to provide a comment. Elliott's stake in BP is through equity swaps, which are financial agreements enabling an investor to gain from stock fluctuations without truly possessing the shares. Elliott's investment does not include voting rights, per the source.

Elliott presses BP for cash flow increase.

BP has stated that it aims to increase its cash flow from approximately $8 billion last year by about 20 per cent annually until 2027, suggesting cash flow close to $14 billion by the end of that timeframe, per Reuters estimates. Elliott wants BP to reduce its expenditures to about $12 billion annually, from the existing range of $13 billion-$15 billion, until 2027, and to enhance its cost reductions, particularly on administrative costs, noted the source, who also mentioned that BP might reduce expenditures universally, encompassing its oil and gas sector. BP, whose shares have underperformed compared to competitors like Exxon for several years, has been working to improve its stock price.

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According to the source, Elliott recommends that BP sell its solar and offshore wind power divisions, noting that Elliott thinks the larger executive team under CEO Murray Auchincloss has fallen short and has not faced any consequences. The Financial Times stated Elliott's views regarding BP's cash flow goals earlier on Tuesday, referencing sources. Elliott's opinions differ from those of Legal and General, BP's seventh-largest shareholder, which earlier this month raised "serious concern" regarding the company's choice to pivot from renewable energy towards oil and gas. Legal and General holds a 1.05 per cent share in BP.