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BP has put share buybacks on hold and upped its cost savings target as it revealed sharply lower annual profits after steep falls in the cost of crude.

The FTSE 100 oil giant reported a 16% fall in underlying replacement cost profits – the company’s preferred earnings measure – to 7.49 billion US dollars (£5.47 billion) for 2025, down from 8.92 billion dollars (£6.52 billion) in 2024.

It came after fourth-quarter earnings fell 30% quarter-on-quarter in the last three months of the year, to 1.54 billion dollars (£1.12 billion), though this was 32% higher than a year earlier and in line with expectations.

The group said it was now targeting cost savings of 5.5 billion dollars to 6.5 billion dollars (£4.02 billion to £4.75 billion) by the end of next year, up from a previous target of up to 5 billion dollars (£3.65 billion).

In a blow to investors, it said it was suspending its share buyback programme “to accelerate strengthening” of its balance sheet, sending shares down 4% in morning trading on Tuesday.

It comes after a year of turmoil for the oil major, which came under pressure from activist investor Elliott Investment Management and saw Murray Auchincloss step down as chief executive after less than two years in the role.

Woodside Energy boss Meg O’Neill has been appointed to replace him and will start in the role on April 1.

Its troubles were compounded further by hefty falls in the cost of crude in 2025 that saw oil prices drop below 60 dollars a barrel for the first time in nearly five years.

Carol Howle, who is taking the helm on an interim basis, said: “We have made progress against our four primary targets – growing cash flow and returns, reducing costs, and strengthening the balance sheet – but know there is more work to be done, and we are clear on the urgency to deliver.

“With a continued emphasis on capital discipline and returns, we are reducing capital expenditure for 2026 to the lower end of the guidance range, while continuing to drive down our cost base.

“We are also taking decisive action to high-grade our portfolio and strengthen our company, including the execution of our 20 billion dollar (£14.62) disposal programme and the decision to suspend the share buyback and fully allocate excess cash to our balance sheet.”

BP’s rival Shell last week also revealed the toll taken by the oil price rout, with its 2025 underlying earnings plunging 22% to 18.53 billion US dollars (£13.6 billion) after a 40% tumble quarter-on-quarter in the final three months of the year.

Despite the heavy profit fall, Shell announced another 3.5 billion dollars (£2.7 billion) of share buybacks and a dividend hike.

But BP has additional home-grown problems, with the group confirming it wrote down the value of its underperforming solar and renewable natural gas businesses by around 4 billion dollars (£2.92 billion).

Its massive debt pile now stands at 22.18 billion dollars (£16.22 billion) – down marginally from 23 billion dollars (£16.82) in 2024 – though this does not include around 6 billion dollars (£4.38 billion) in proceeds it is set to receive from the sale of a majority stake in its Castrol lubricants business, announced in December.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Management is taking some decisive action to fix the balance sheet, scrapping the buyback, doubling down on non-core disposals and upping structural cost-savings targets.”

He added: “This leaner, meaner approach could pave the way for more sustainable payouts to shareholders further down the line, but with investment spend coming down, investors will want some assurance on BP’s plans to remain an energy leader over the long term.”