By Arunima Kumar

(Reuters) -BP slashed planned investment in renewable energy and said on Wednesday it would increase annual oil and gas spending to $10 billion, in a major strategy shift aimed at boosting earnings and shareholder returns.

The oil major cut planned annual investment in energy transition businesses by more than $5 billion, from its previous forecast, to between $1.5 billion and $2 billion per year.

"We will grow upstream investment and production to allow us to produce high margin energy for years to come. We will focus our downstream on markets where we have leading integrated positions," CEO Murray Auchincloss said in a statement.

Under Auchincloss' predecessor, Bernard Looney, BP pledged in 2020 to cut oil and gas output by 40% while rapidly growing renewables by 2030. BP lowered the reduction target to 25% in 2023.

BP now aims to grow oil and gas production to between 2.3 million and 2.5 million barrels of oil equivalent per day (boepd) in 2030.

Across the energy sector, major companies that shifted their position in response to the need to lower carbon emissions and curb climate change have returned the focus to oil and gas, where returns have become easier as fossil fuel prices have rebounded from COVID-19 pandemic lows.

"We will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset BP, with an unwavering focus on growing long-term shareholder value," Auchincloss said.

BP is seeking to regain investor confidence after underperforming its peers and has come under added pressure to make transformative changes after activist investor Elliott Investment Management built a stake in the company.

Its shares were down 1% by 1151 GMT.

"The refocus on hydrocarbons is positive for BP as is the overall lower spending, which is driven by lower renewable spending," said Allen Good, director of equity research at Morningstar.

"Along with the asset divestitures it should improve the balance sheet and returns. However, there still is little, if any, production growth, and BP's repurchase rate has been reduced materially," Good said.

BP plans to raise its dividend by at least 4% per share annually and expects first-quarter share buybacks of $750 million to $1 billion, a downward revision from its previous $1.75 billion forecast.

It said it was reviewing its lubricants business, Castrol, and targeting $20 billion in divestments by 2027.

BP plans to spend between $13 billion and $15 billion annually through 2027, trimming $1 billion to $3 billion from 2024 levels, with 2025 capital expenditure expected at around $15 billion.

(Reporting by Arunima Kumar in Bengaluru; Editing by Sriraj Kalluvila and Emelia Sithole-Matarise)