bp announces it will pivot back to oil and gas, cut renewables spending
(Bloomberg) – In a highly anticipated presentation, bp Chief Executive Officer Murray Auchincloss reversed a plan to shrink oil and gas production and cut investments in low-carbon energy, but also slashed the quarterly share buyback — undermining what has become a key plank of the petroleum industry’s pitch to investors.
The changes announced on Wednesday were significant, representing a major break from five years in which bp was the oil industry’s most ardent pursuer of net zero emissions and the transition to clean energy, which executives acknowledged went too far too fast. Nevertheless, the cut in share buybacks to between $750 million and $1 billion a quarter, from $1.75 billion previously, dimmed the appeal to investors.
bp has been under intense pressure since Elliott built up a stake worth almost $5 billion. The next move from the activist investor, which is renowned for its aggressive tactics and has been demanding big change including a broader exit from low-carbon energy, will be determined by whether Auchincloss has gone far enough.
If Elliott is unsatisfied, it may push for board and management changes, people familiar with the matter told Bloomberg earlier this week. Chairman Helge Lund, who was a key backer of the company’s now-criticized net zero strategy, could come under particular pressure.
Throughout a day of detailed presentations, Auchincloss voiced his confidence about the plan even as the slide in the company’s stock deepened.
“We’ve put together something that’s very compelling, which is a reset strategy focused on growing the upstream” while cutting spending in other areas to help strengthen bp's balance sheet, Auchincloss said in an interview. “I think in the long run investors will love this.“
bp will increase investment into oil and gas to about $10 billion a year, with the intention of growing production to 2.3 million to 2.5 million barrels of oil equivalent a day (boed) by 2030. Its previous target was for a reduction in output of 25% at the end of the decade, compared with 2019 levels.
The company will reduce annual investment into low-carbon energy to $1.5 billion to $2 billion, about $5 billion lower than its previous guidance.
“It does feel like bp has heard the market’s message on the need for a fundamental reset,” Kim Fustier, HSBC Holdings Plc’s head of European oil and gas research, said in a note. “bp is indeed going back to oil and gas and tightening up investment discipline,” but exceeding the high level of expectations before the presentation “was going to be difficult,” she said.
