BP has returned to its oil and gas roots, pledging to slash spending on renewable energy as it tries to catch up with rivals, end years of lacklustre shareholder returns and fend off pressure from activist investor Elliott Management.
The changes announced by chief executive Murray Auchincloss on Wednesday killed off a radical five-year-old plan by the oil major to pivot to greener projects. That strategy had established BP as a leader in the energy transition but ultimately failed to win shareholder support.
In what Auchincloss described as a “fundamental reset of BP’s strategy”, the FTSE 100 company abandoned its targets to cut fossil fuel production and develop 50 gigawatts of renewable power.
Under Auchincloss’s plan, it will increase oil and gas spending by a fifth to $10bn a year and cut spending on renewables by 70 per cent.
It also plans to raise at least $20bn by 2027 through the sale of assets, potentially including its lubricants arm Castrol and a share of its solar business Lightsource.
Auchincloss justified the reversal by saying the “optimism of a rapid transition” to renewable energy had faded and that the world’s demand for crude oil is stronger than the company had predicted. “We adapt to how society moves,” he told the Financial Times.
Shareholder pressure on Auchincloss to revamp BP’s strategy had increased after it emerged this month that Elliott had built a near-5 per cent stake in the £72bn company and was pushing for change.
BP’s shares fell 1 per cent after it published its strategy update on Wednesday in sign that investors remained uncertain over whether the announcements went far enough.
“We put a ton of information out there, [investors] will need to interpret that and understand it. And then I expect the share price to start moving up over the coming weeks and months,” said Auchincloss.
Auchincloss said he expected a “pretty high growth rate” for BP’s upstream business and planned to launch as many as 27 new projects in the next five years as the company rebuilds oil production capacity after years of trimming its output. “We’ve got 16 billion barrels to pursue,” he said.
But BP will still produce slightly less oil and gas in 2030 than it did in 2019 and Auchincloss said the group had not abandoned its plans to be a diversified energy company. “I don’t really see anybody else doing any more than we’re doing at this type of scale,” he said. “You will see no better integrated energy company in the world than BP.”
In a total reset of BP’s financial outlook, Auchincloss signalled a lower rate of shareholder returns, but promised to cut at least $4bn of costs and reduce net debt by at least a fifth in the next two years.
Auchincloss said there were “lots of options” to achieve his aim of raising $20bn by selling parts of the business, including infrastructure, upstream and downstream assets and some of its petrol station network.
Stuart Joyner, an analyst at Redburn Atlantic, said that BP was “moving in the right direction . . . but there’s near-term softness in the pathway”. Biraj Borkhataria, an analyst at RBC Capital Markets, added that while BP appeared to be making “the right calls for the long term, it may not please investors today”.
