The Bill for the Renewables Retreat

BP p.l.c. — one of the world's largest integrated oil and gas companies. BP reports in US dollars; the valuation below is in pence, using an adjusted earnings-per-share base of around 49.9 cents (approximately 37.4p).

I generally haven't looked into energy shares much in recent times, given movements in the energy markets and a big push in previous years to transition to renewable energy. I have never really liked where BP were heading on their renewable-energy push — they began a really big pivot into renewables, seeing that as the future of the company, and I could never quite understand where they were going with it. What makes you a good natural-gas or oil driller, refiner and transporter does not give you transferable skills for, say, wind power. The company has since moved quite heavily back from those big renewable plans.

In a general sense, BP have been floundering somewhat in recent years — really ever since the Deepwater Horizon crisis they have struggled with where the company is going, what their priorities should be, and how to generate growth and profitability.

The last two years have been abysmal in reported-profit terms. Reported earnings per share was tiny — 3.1 cents (2024) and 0.4 cents (2025) on a dollar basis — while the adjusted figures are a good deal healthier. The gap between the two is almost entirely impairments and other adjusting items, covered in detail below.

BP is still heavily an oil company, but their gas and other non-oil product revenues do account for 38.5% of turnover:

Revenue by stream, 2021–2025 ($m)

BP's fortunes track the Brent price — the huge 2020 loss (COVID demand collapse and impairments), the 2022 windfall, and the subsequent normalisation as Brent settled back toward the 70–80 dollar range.

But BP is as much a gas company as an oil company, and the gas story is arguably more informative. The striking feature is 2022: European gas (the TTF benchmark) spiked to extraordinary levels on the Russia/Ukraine supply shock — far more violently than oil did — which is a large part of why BP's 2022 turnover and trading profit were so enormous: its gas-trading and marketing arm had a spectacular year. Note also how divergent the US Henry Hub price is from the European price: US gas stayed cheap throughout, while Europe increased dramatically. That transatlantic spread is precisely what BP's LNG shipping-and-trading business exists to arbitrage.

So is natural gas usage rising? Yes globally, but slowly and very unevenly, and the recent story is one of a marked slowdown after a strong 2024. Global gas demand grew 2.7–2.8% in 2024 (around 115 bcm — billion cubic metres — a record high), but growth slowed sharply to only around 1% in 2025 (around 40 bcm) amid weaker industrial activity and high LNG prices in the first half. So volumes are still rising, but the pace roughly halved.

• United States: The largest gas consumer in the world (around 22% of global demand), at roughly 910 bcm. US demand rose around 1.9% in 2024 and just over 1% in 2025 — the 2025 rise driven by colder winter weather lifting building use, while power-sector gas demand actually fell around 3.5% as higher Henry Hub prices (up around 60% in 2025) drove some gas-to-coal switching. The structural US story is the LNG export build-out: the US is the world's largest LNG exporter and adding capacity fast, which pulls domestic gas into export terminals and supports prices.
• European Union: The clearest demand-destruction story. EU gas demand fell heavily after the 2022 Russia shock (from around 412 bcm in 2021 to the low 330s bcm), and although 2025 saw the strongest increase since 2021 (around 3%, on cold weather and weak wind/hydro output), demand remains far below pre-crisis levels. The EU has committed to phase out Russian gas entirely by November 2027, which keeps European LNG import demand structurally high even as total consumption stays subdued.
• United Kingdom: A gradually declining market — UK gas demand has drifted down from around 76 bcm (2021) toward the mid-60s bcm, as renewables displace gas in power generation and efficiency and heat-pump policy slowly erode building demand. The UK is not a growth market for gas volumes; its relevance to BP is more as a trading hub and an LNG import point than as a source of demand growth.
• China: The key long-term growth engine, but cooling. China's gas demand grew around 7% in 2024 but slowed to around 2% in 2025 (to roughly 430 bcm), as weaker industrial activity and a rapid renewables build-out capped growth; notably, China's LNG imports actually fell around 14% in 2025 as cheaper domestic production and Russian pipeline gas displaced spot LNG. Over the medium term the IEA still expects China to account for around a quarter of all global gas demand growth to 2030.

The forecast — where demand goes next. The consensus (IEA Gas 2025, World Bank) is that global gas demand growth reaccelerates modestly in 2026 (around 2%) to a new all-time high, then grows at an average of around 1.5% a year to 2030 — an increase of around 380 bcm by 2030. Crucially for prices: a large wave of new LNG supply (around 300 bcm of new export capacity by 2030, led by the US and Qatar) is arriving, which the IEA expects to outpace demand growth and potentially leave a surplus. The regional split of future growth is decisive — the Asia Pacific region (China first, then emerging Asia) accounts for around half the increase to 2030, with the Middle East also meaningful; Europe and North America are expected to stagnate or decline in volume terms. So: rising globally, driven by Asia and the Middle East, flat-to-falling in the mature Western markets, and with ample new supply that argues against a sustained price spike — consistent with my broader "prices stay roughly where they are" view.

For context: in the first few weeks of the Iranian crisis I was very concerned about substantially rising energy prices through the rest of this year and into next, and thought prices would go sky-high and stay elevated for a long time. To my surprise, that is not what the futures market is pricing, and not what the market now expects — you can see it in the longer-term futures and in my Brent crude oil article elsewhere on the site. My stance now is that energy prices are largely going to stay around where they currently are.

As a counterpoint to this: Trumpian policy has a tendency toward volatility, which is also likely to hit the general energy markets. And at other times a weak global economy has hurt demand — though I am not anticipating a period of global-economic negativity any time soon. With growth in energy demand, especially in the US, Africa and Asian markets, there is some tailwind behind the energy companies. At the least, we can expect prices will not become depressed over the coming few years, and from that point of view there might be some tailwind.

Net asset value and net debt. BP's net asset value has been slipping year on year, with a slight bounce back in 2023, but over the last five years net asset value has fallen by around 13.5%. Net borrowings hit a low in 2022 and have risen for the last three years, now sitting at around $54.3bn on the tear-sheet basis (BP's own reported net debt is around $22bn at end-2025, having been reduced through heavy divestment — the difference is basis, so treat the two consistently).

Margins. Gross margin hit relative highs of 22.8% (2022) and 22.9% (2023) but has since shrunk to 17.7%. These are not great gross-margin figures.

Shares in issue. A slight spark of positivity: shares in issue have reduced by around 24% over the last five years, which is quite positive — sustained buybacks funded by the windfall years and by disposals.

Impairments are driving the profit swings. These are the write-downs that sit inside "adjusting items" and are stripped out to get to underlying profit. The pattern is: a normal year (2021), a catastrophic Russia year (2022), a quiet year (2023), then two heavy years of transition-asset write-downs (2024–25).

Pre-tax impairments by year (approximate)

The story the table tells is important for judging future profitability. The 2022 Russia hit was a genuine one-off — a geopolitical shock, now fully absorbed (Rosneft is already at zero, so it cannot be written down again). The 2024–25 impairments are different and arguably more telling: they are the cost of unwinding the renewable-energy strategy I was always sceptical of. BP over-invested in solar, biogas and offshore wind at the top of the transition enthusiasm, and is now writing those assets down to more realistic values while deliberately slowing that growth and "high-grading" the portfolio. That is management admitting that the pivot went too far.

For a forward view this cuts two ways. On the negative side, if there are further transition assets carried above their true worth, more write-downs could follow — the 2024–25 pattern may not be finished. On the positive side, once the renewable book is cleaned up, the drag on reported profit should fade, and the underlying oil-and-gas business (which never stopped making money) would show through far more clearly in the reported numbers. The key judgement for any valuation is whether the 2024–25 impairments are the end of the clean-up or the middle of it.

So what is likely to happen next with impairments? The clear answer is that BP is not finished: management is explicitly continuing to "simplify the portfolio and focus on value," running a roughly $26.7bn divestment programme and moving to "capital-light" partnerships across renewables. They have not said they are done rationalising — quite the opposite. That means the risk of further write-downs is significant.

Assets at risk of further write-downs

Because the impairments distort reported earnings per share so heavily, the adjusted (underlying replacement cost) earnings per share is a clearer year-by-year guide to the trading business. Here it is for the five years:

Adjusted EPS and underlying profit, 2021–2025

We can see here that the underlying profit has been slipping for the past three years since the major energy spikes. It is a bit of a crass oversimplification, but I am leaning towards the stance that BP will continue to be able to achieve profitability of adjusted earnings per share of around 49.9 cents per year on average going forwards, but that they will struggle to outperform this figure meaningfully anytime soon.

Finance costs have been rising steadily as debt has grown and rates have stayed high. Reported group finance costs were around $3.84bn (2023), $4.68bn (2024) and $5.11bn (2025). Stripping out lease interest and the unwinding of discount on provisions, the pure pre-tax interest expense was around $2.57bn (2023), $3.11bn (2024) and $3.34bn (2025). Gross finance debt sits at around $58bn, against net debt of around $22bn (the difference being cash and cash equivalents of around $36bn).

Finance metrics, 2023–2025

On the refinancing question: BP's debt is spread across a long ladder of bonds and hybrids maturing over many years, so there is no single cliff-edge "roll-over" date — a portion matures each year and is refinanced at prevailing rates. As a rough sensitivity, a 2-percentage-point rise in the rate on refinanced debt, applied to the gross finance debt of around $58bn, would add on the order of $1.1bn a year to interest cost if applied to the whole book — but because only a slice (very roughly 15–20%) rolls over in any given year, the near-term annual impact of a 2% rate rise on newly-refinanced tranches is more like $150–250m a year, building over time as more of the book reprices. BP is also actively targeting lower net debt (a stated $14–18bn target by end-2027), which would blunt the effect further.

BP remains a company that has struggled since Deepwater Horizon; the last two years of reported numbers have been abysmal — though the damage is largely the self-inflicted cost of retreating from an over-ambitious renewables push, now being written off. Strip the impairments out and the underlying business still made around $7.5bn. The buyback-driven 24% reduction in the share count is a positive. Against that: margins have compressed to 17.7%, net asset value has slipped around 13.5% over five years, net borrowings have risen three years running, and finance costs keep climbing.

On balance, I do not anticipate energy prices becoming more elevated soon, but nor do I expect them depressed — with long-term demand growth in the US, Africa and Asia providing a minor tailwind, and Trumpian volatility a wildcard on the upside. That gives the energy majors some support.

I am using the current adjusted earnings-per-share figure of 37.4p (around 49.9 US cents) as an ongoing figure, as I do think it does roughly represent the company's underlying performance. I have also added in a 10% reduction in my valuation, because I feel that the company have some significant impairments to enact, as well as their tendency to fail to make progress. On that basis — a growth rate of 2.5%, a valuation multiple of 8, and a 20% risk factor — the figures are as follows.

VALUATION SNAPSHOT

The price-to-earnings ratio is computed from the current price on the 37.4p adjusted base (455.60p ÷ 37.4p = 12.2x). Reported 2025 earnings per share was near zero, so no meaningful reported-basis ratio exists. The tear sheet did not specify a research grade or proposed action; the verdict shown reflects the note's conclusion.

This gives an actual valuation of 323.14p against a current share price of 455.60p — a value opportunity of −29.1%. On these figures the shares look overvalued. The valuation is deliberately conservative: it takes the current, already-depressed adjusted earnings per share of 37.4p as a flat run-rate with no recovery assumed, and then applies a further 10% reduction for the impairment overhang and BP's persistent difficulty in making strategic progress. If the underlying business re-rates, or oil-price firmness lifts earnings above that 37.4p base, the picture improves — but on the evidence as it stands, I am not paying up for BP here.

• The clean-up ends and earnings show through: If 2024–25 was the end of the impairment cycle rather than the middle, reported profit converges on the $7.5bn underlying figure and the market re-rates the shares — the biggest risk to my caution.
• Energy prices firm up: Trumpian volatility is a wildcard on the upside, and demand growth in the US, Africa and Asia is a genuine tailwind. Earnings above the flat 37.4p base would improve the picture directly.
• The buyback lever returns: The share count is already down 24% in five years; hitting the $14–18bn net-debt target by end-2027 could allow buybacks to resume and mechanically lift earnings per share.
• The divestment programme delivers: Clean exits at or above carrying value (Castrol especially) would both de-risk the balance sheet and remove the write-down overhang I am charging 10% for.
• A 5.4% yield pays you to wait: Income investors may support the price well above my valuation regardless of the earnings quality.