BP’s green pivot has backfired spectacularly, hammering profits and leaving the company vulnerable to a hedge fund siege, writes Jonathan Leake in the Telegraph. Here’s an excerpt:
Addressing journalists and executives at the Royal Lancaster Hotel overlooking Hyde Park, Bernard Looney, BP’s new Chief Executive, urged them to “reimagine” his company as a champion of green power.
By 2030, BP would have cut oil and gas production by 40%, he pledged, with the lost fossil fuel income replaced by wind farms, solar parks and biofuels made from plants.
He said: “BP has been an international oil company for over a century… Now we are pivoting to become an integrated energy company.
“We believe our new strategy provides a comprehensive and coherent approach to turn our Net Zero ambition into action. This coming decade is critical for the world in the fight against climate change.”
Five years on from that speech in February 2020, the company is beleaguered by a ruthless activist investor, under pressure to boost its flatlining share price and considering a return to the oil and gas exploration that made it so successful to begin with.
The abrupt turn follows decades of crisis at one of Britain’s most venerable institutions. Today, its future is more uncertain than ever.
The Net Zero plans unveiled by Looney have hammered profits and generated intense speculation about a takeover, break up or even a merger with arch-rival Shell.
This month the fears became real with revelations that Elliott, a Florida-based hedge fund and corporate raider, has built a £3.8 billion stake in BP – and is laying siege to the company.
On Wednesday, BP will face the ultimate test at its capital markets day when Murray Auchincloss, the company’s current chief executive, will seek to persuade sceptical investors that he can deliver a “fundamental reset”.
To win round doubters, he is expected to announce a major break with the last five years – shifting away from Net Zero and back towards its oil and gas heritage.
But many in the City are asking how a company of BP’s size and stature has found itself in this position in the first place….
BP’s Net Zero pledges were backed by precise numbers.
Looney promised that by 2030 BP would boost investment in renewables tenfold from $500 million (£395 million) to $5 billion and build windfarms and solar parks with a capacity of 50 gigawatts – roughly enough to supply the whole UK on a windy and sunny day.
Over the same period it would slash oil and gas production from the equivalent of 2.6 million barrels of oil a day to 1.5 million. Refining throughput would drop from 1.7 million barrels a day to just 1.2 million. …
It did not take long for problems to start emerging.
After Russia invaded Ukraine in February 2022, oil and gas prices spiked. The surge rained cash down on fossil fuel producers, including BP. However, it raised questions as to why the company was pulling back from such a profitable market.
In February 2023, after a blockbuster $28 billion profits for 2022 linked to the global energy crisis, Looney was forced to slash his pledge to cut production by 40% by the end of the decade to a more modest 25%.
BP’s shareholders had realised that the green spending they supported in 2020 had halved their dividends. Total shareholder returns had underperformed Shell by 15%, France’s TotalEnergies by 30%, Chevron by 60% and ExxonMobil by 100%. …
Few of Looney’s 2020 promised renewable energy projects have materialised.
Earlier this month BP used its 2024 results day to announce that those that have been built – such as its 10 US windfarms – are to be sold. Its other wind assets (mostly planning approvals, including around the UK), are to be shunted into an independent joint venture.
BP Lightsource, BP’s solar subsidiary, is still building solar farms – but these are then sold on, meaning no long-term investment or income.
Pushed by analysts, Auchincloss, Looney’s replacement, confirmed a halt to all investment in wind and solar. “We have completely decapitalised renewables,” he said.
The same results showed BP made $8.9 billion in underlying profit compared with $13.8 billion in 2023 – its worst annual result since 2020, the year of the pandemic.
In response, Auchincloss promised a wave of new oil and gas production, including BP’s sixth hub in the Gulf of Mexico. The Kaskida development will soon be producing 80,000 barrels of crude oil a day, with other developments planned in Iraq, India, Brazil, Egypt and the UK’s North Sea.
Overall, he has suggested BP’s oil production will rise by 2-3% a year until 2030.
All that, say analysts, completely contradicts the “zombie” Net Zero strategy bequeathed by Looney – as well as offering a strong clue as to what Auchincloss’s “fundamental reset” will include – a full-blooded return to oil and gas.
Worth reading in full.
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