BP has put its North Sea oil and gas business up for sale, aiming to end six decades of production in the region. The move is part of a wider strategy to slim down the company's global operations.
The oil firm has doubled down on fossil fuels in recent months, as prices have spiked following the outbreak of the Iran war. That has led to what BP called an "exceptional" performance for its share price.
BP's share price inched higher on Friday following the sale announcement but has not seen large swings. Shares rose 0.59 per cent to 546p by Friday lunchtime.
Earlier this year, BP held talks with Ithaca Energy over a near £2billion deal for the North Sea business, but no agreement was reached.
BP chief executive Meg O'Neill, who took over in April, said on Friday that while the North Sea remained integral to Britain's energy system, she believed the business would be "better positioned as part of another company." She said the sale process reflects the company's disciplined approach to capital allocation. It comes just months after she said she saw "untapped potential" in the region.
Why is BP selling its North Sea operations?
BP said the withdrawal forms part of an ongoing portfolio review, as it reorganises to become what it calls a simpler, stronger and more valuable company.
BP operates five hubs in the region, two in the central North Sea and three west of Shetland, employing 1,100 people. Last year it produced over 100,000 barrels of oil a day there, a fraction of the 2.3 million barrels BP produced worldwide.
Since O'Neill took over in April, BP has pivoted back toward fossil fuels after a foray into renewable energy. It has reorganised the business into two segments, upstream and downstream, and recently announced plans to cut 700 non-frontline jobs, warning of potential oversupply and lower oil and gas prices.
The shake-up has not gone without incident. In May, chair Albert Manifold was abruptly sacked over claims of bullying behavior, which analysts predicted could blow BP's recovery off course.
BP is one of the last oil majors with a significant operation in the North Sea. It will soon follow ExxonMobil, Chevron, ConocoPhillips, Shell, TotalEnergies and Eni, which have all sold, merged or reduced their operations in the region.
The sale comes after a sharp drop in production, driven by a depleting basin and ageing infrastructure, and made worse by Labour's ban on new oil and gas drilling and a windfall tax on energy firms. In her first Budget in 2024, Chancellor Rachel Reeves increased the windfall tax on North Sea oil and gas producers to 38 per cent from 35 per cent and extended the levy by one year. Combined with the Ring Fence corporation tax of 30 per cent and a supplementary charge of 10 per cent, that brings the headline tax rate to 78 per cent.
Richard Hunter, head of markets at Interactive Investor, said big oil is big business and BP is a major global player, so it scrutinises its return on capital and offloads what it considers non-core assets. He said the lack of action in the North Sea and the possibility of windfall taxes may well have prompted the decision, which is understandable from a business perspective but a bitter pill for those affected in the region.
Of the 24 fields BP operates in the region, half are producing and half have begun abandonment.
What will it mean for BP's share price?
BP is already one of the most widely held and well-loved stocks among British investors, having paid generous dividends for over 50 years. Its current annual dividend yield is 4.55 per cent.
The UK government once held major stakes in BP, and its interests were for years seen as entwined with foreign policy. The government sold its last remaining shares in BP in 1987.
An investor who put £1,000 into BP ten years ago would have seen the investment grow to around £1,289 today. Had they reinvested the dividends, the holding would have risen to as much as £2,288 today. But that trails the FTSE 100, which has risen more than 62 per cent over the same ten years.
BP shares have gained further popularity in recent months after reporting exceptional performance as oil prices surged following the outbreak of the Middle East conflict. The share price is up 35 per cent over the past year and has gained 14 per cent since the Iran war began at the end of February. An investor who put £1,000 into BP shares at the start of the conflict would have seen the portfolio grow to £1,145 in five months, outperforming the FTSE 100's 9 per cent gain this year.
BP shares are forecast to yield 4.68 per cent in 2026, rising to 4.9 per cent in 2027, though the board has paused its share buyback scheme.
Sam North, market analyst at eToro, said a sale would be meaningful without fundamentally changing the group. He said it would simplify the business, release capital and allow BP to focus on higher-return projects in markets such as the US and Brazil.
Analysts do not expect an immediate impact on the share price and are waiting for clarity on the price and terms of a deal. A strong valuation would help reduce debt and improve returns for investors and could boost the share price, while a discounted sale would raise questions over whether BP is getting a fair deal.
Duncan Ferris, an analyst at investment group Freetrade, said investors may welcome BP's ruthless focus on larger and higher-return opportunities, but will want the business to avoid letting a still-reliable asset go at a cut price. He said the modest uptick in share price suggests investors cautiously approve of pruning lower-priority assets in favor of BP's big beasts, but the rise is hardly meteoric, and many investors are likely reserving judgment until a willing buyer and a firm price tag are lined up.
North, of eToro, added that a strong valuation, with proceeds used to reduce debt or fund higher-return projects, would be positive, while a discounted deal or significant retained decommissioning liabilities could weigh on the shares.
The disposal also avoids a war of words between BP and the Labour government, which has been non-committal on its plans for the North Sea. Andy Burnham hinted at a shift in Labour's ban on new oil and gas drilling, part of the party's 2024 manifesto, saying that at a time of tight public finances, the North Sea was a resource the country cannot ignore.
The biggest driver of growth at BP will instead come from a surge in oil prices, which shows no sign of stopping as the US and Iran fail to agree to a meaningful ceasefire. Brent crude oil is currently trading at $89 a barrel, almost $20 above pre-war levels of around $72.
BP's most recent quarterly trading update indicated further strength in its trading business, which remains based in the UK and drives performance during periods of volatility. US oil majors, while bigger, focus primarily on production and asset ownership.
BP expects oil trading to be marginally higher in the second quarter than in the first, when it flagged an exceptional performance and reported profits of $3.2billion between January and March, more than double the previous quarter. Investment house Berenberg raised its price target from 590p to 600p following the update, with a recommendation to buy.
What next for BP shares?
A prolonged closure of the Strait of Hormuz would likely push oil prices higher and benefit BP's share price. Analyst consensus rates BP as a moderate buy or hold, with an average 12-month price target of around 603p, nearly 10 per cent higher than its current level.
Now that BP plans to exit the North Sea, its fortunes will be dictated less by Andy Burnham's plans for the region and more by President Donald Trump and Iran.
Investors looking to capitalise on volatility in oil markets can gain further exposure through BP's rival Shell, and the FTSE 250-listed independent explorer Harbour Energy. A bolder bet could be placed on North Sea producers, which may benefit from consolidation and joint ventures in the region.
Ithaca Energy, which is in the FTSE 250 and was reportedly in talks to buy BP's North Sea business, has seen its shares rise nearly 50 per cent this year. The company generates all of its revenue from the North Sea and could benefit from any change in tone from the government, though it remains heavily exposed to windfall taxes.
