BP’s $25.3 Billion Debt Overhang Forces a Pause on Buybacks Even as Profits Surge

BP posts strongest quarterly profit in years at $3.2B, but new CEO Meg O’Neill focuses on deleveraging as net debt hits $25.3B, suspending buybacks while raising dividend 4%.

BP posted its strongest quarterly profit in years during the first three months of 2026, yet the message from new chief executive Meg O’Neill was one of restraint rather than celebration. The London-listed oil major generated a $3.2 billion adjusted net profit for the period, comfortably beating analyst forecasts, but the headline figure masks a balance sheet under pressure.

Net debt climbed to $25.3 billion by the end of March, and O’Neill has made it clear that repairing the company’s finances takes precedence over rewarding shareholders. Share buybacks remain suspended for now, even as the company’s trading desk cashed in on the turmoil sweeping energy markets. The conflict in Iran has delivered exceptional profits to European oil majors with large trading operations, and BP has also avoided the production outages that have plagued US rivals such as Exxon Mobil.

The dividend, however, got a modest lift. BP declared a quarterly payout of 8.32 US cents per share, up from 8 cents a year earlier — a 4% increase that offers some comfort to income-focused investors even as the buyback programme stays on ice.

A clear path to deleveraging

The management’s target is to bring net debt down to between $14 billion and $18 billion by the end of 2027. That implies a reduction of at least $7.3 billion from current levels. One key lever is a planned cut in hybrid bond capital to roughly $9 billion, with maturing instruments not being replaced.

Citigroup analysts noted that the company is squarely focused on deleveraging and lowering its cost of capital. The strategy is unambiguous: balance sheet repair comes before shareholder returns.

Operationally, the first quarter was a mixed bag. While the trading windfall boosted earnings, the build-up of working capital — driven by higher prices and seasonal effects — weighed on operating cash flow, which came in at just under $3 billion.

Cost cuts and asset sales gather pace

O’Neill is also pushing ahead with a portfolio simplification. The sale of the Gelsenkirchen refinery in Germany and the Castrol transaction are expected to funnel billions into the corporate coffers. Meanwhile, the structural cost-cutting programme has been intensified. BP now aims to reduce annual costs by up to $7.5 billion by 2027, an increase of $1 billion from its previous target. That represents nearly a third of the 2023 expense base.

The shares have rallied hard on the back of the improved earnings outlook. BP’s stock closed at €6.62 in European trading, up roughly 31% since the start of the year and close to its 52-week high. Technical indicators, however, flash a warning: the relative strength index stands above 83, a level that typically signals an overbought condition.

Headwinds building for the second quarter

The company has tempered expectations for the current quarter. Seasonal maintenance work in the Gulf of Mexico and ongoing disruptions in the Middle East are expected to weigh on production volumes. BP also anticipates lower upstream output for the full year 2026.

Capital expenditure remains unchanged at a maximum of $13.5 billion for the year, underpinned by the solid operating cash flow. But as long as oil prices hold near current levels — Brent crude averaged just over $81 a barrel in the first quarter, a 27% jump from the prior period — the strong cash generation should help absorb the operational hiccups.

For now, O’Neill’s message to the market is clear: the debt mountain must be conquered before the company can return to a more generous shareholder policy. The trading profits are welcome, but they are being deployed to fix the balance sheet, not to fund buybacks.