Activist investor Elliott Management has urged BP to boost its free cash flow by an additional 40% through significant spending reductions, the Financial Times reported on Tuesday.
Elliott is urging BP to shift its focus from growing its oil and gas business to prioritising a target of $20 billion in annual free cash flow by 2027, the report said, citing people familiar with the matter.
BP, whose stock has lagged rivals such as Shell and Exxon for years, has been striving to enhance its share price.
The hedge fund also suggests BP divest its solar and offshore wind power businesses, asserting that there is potential to reduce spending in its oil and gas operations due to the sufficiency of its future oil resources, according to the report.
Elliott holds a little over 5% of voting rights in BP, a regulatory notice of holdings showed on Tuesday. This makes it the BP’s second-biggest shareholder after BlackRock, which owns a 9.2% stake, according to LSEG data.
The hedge fund believes BP can achieve a higher valuation by being more disciplined in its spending, reducing capital expenditure to $12 billion a year from the company’s target range of $13 billion to $15 billion, the report added.
Elliott’s comments differ from that of Legal and General, BP’s seventh-largest shareholder, which earlier this month expressed “deep concern” over the company’s decision to shift its focus from renewable energy to oil and gas. Legal and General owns a 1.05% stake in BP.
Elliott has engaged with several major BP shareholders to build consensus for further changes at the oil major, potentially including cost cuts and leadership changes, Reuters reported in March, citing two BP shareholders.
BP in a mailed statement said it welcomes constructive feedback from all shareholders, while Elliott declined to comment.
(Reporting by Aatrayee Chatterjee in Bengaluru and Shadia Nasralla in London; Editing by Leroy Leo)