Elliott wants BP to boost free cash flow to $20 billion by 2027, source says

By Shadia Nasralla

(Reuters) -Activist investor Elliott Management has urged BP to boost its free cash flow to $20 billion by 2027 from around $8 billion last year through significant spending cuts and cost reductions, a source familiar with the situation said on Tuesday.

Elliott has increased its stake in BP to just over 5% in the form of derivative contracts, according to a regulatory notice on Tuesday, placing Elliott between top shareholders BlackRock and Vanguard, according to LSEG data.

Elliott has met with more than 20 investors who are among BP's largest active shareholders, the source said.

Reuters reported in March that Elliott had discussed the need for deeper spending and cost cuts and potential leadership changes with other BP shareholders and wanted BP to divest its renewable power business.

BP, which has said it received good feedback from shareholders on its strategy, said in an emailed statement that it welcomes constructive feedback from all shareholders. Elliott declined to comment.

Elliott's investment in BP is via equity swaps, which are financial contracts that allow an investor to benefit from stock movements without actually owning the shares. Elliott's stake does not carry voting rights, the source said.

BP has said it wants to grow its cash flow from around $8 billion last year by around 20% each year through to 2027, implying cash flow near $14 billion by the end of that period, according to Reuters calculations.

Elliott would like BP to cut its spending to around $12 billion a year, down from a current range of $13 billion-$15 billion, through to 2027, and deepen its cost cuts, especially on administrative expenses, the source said.

BP could cut spending across the board, including its oil and gas business, the source added.

BP, whose stock has lagged rivals such as Shell and Exxon for years, has been striving to enhance its share price.

Elliott also suggests that BP divest its solar and offshore wind power businesses, the source said, adding that Elliott believes the broader executive team around CEO Murray Auchincloss has underperformed and has not been held accountable.

The Financial Times reported Elliott's thinking on BP's cash flow ambitions earlier on Tuesday, citing sources.

Elliott's views 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.

(Reporting by Aatrayee Chatterjee in Bengaluru and Shadia Nasralla in London, additional reporting by Anousha Sakoui; Editing by Leroy Leo and Leslie Adler)