Why has BP pulled the plug on its green ambitions?

The Guardian

26-02-2025

BP has angered climate groups by abandoning its green ambitions to instead invest about $10bn a year in a string of new oil and gas projects to help reverse its flagging fortunes.
The strategy, put forward by its chief executive, Murray Auchincloss, pulls the plug on BP's 2020 plan to become a net zero energy company, which he claims was 'misplaced' and went 'too far, too fast'.
Auchincloss said: 'We made some bold strategic changes, accelerating into the energy transition while progressively reducing our hydrocarbon business.
'We then saw Covid, the war in Ukraine, a recession, and the shift in attitudes of markets and governments had a fundamental impact on the energy system.'
It is the first comprehensive reset of the company's plans since 2020. In simple terms, the company plans to focus on the areas of its business that make the most money.
This means increasing investment in its oil and gas business to just over $10bn a year, of which 70% will be invested in oil and 30% will go to gas. It hopes this will lead to at least 10 major oil and gas projects by 2027, and another eight by 2030.
At the same time it will slash $5bn from the spending plans for its low-carbon energy and retail service stations. It has already spun off of its offshore wind interests to create a 50-50 joint-venture with the Japanese power generator Jera, and it plans to sell off a stake in the solar farm developer Lightsource BP, too. Low-carbon energy will make up less than 5% of its annual investment, versus about 75% from oil and gas extraction. Its previous plan involved putting more than 20%, or $3-$5bn of its $14-$18bn capital spending, into low-carbon.
'I'm truly excited,' said Auchincloss. 'It's very cool.'
It is a stark shift from the plan set out in 2020 under the then boss, Bernard Looney, when BP won praise from green groups for committing to the most ambitious energy transition plan of any major oil company.
The company vowed to 'reimagine' itself as a net zero energy company by 2050 by cutting oil and gas production by 40% by 2030 and growing its low-carbon energy investments ten-fold to $5bn a year by the end of the decade.
Under these plans BP hoped to increase its renewable generating capacity from 2.5GW in 2019 to 50GW by 2030. It also promised to shrink its oil and gas production from 2.6m barrels of oil and gas to 1.5m barrels over the same period.
However, by 2023 BP had begun to water down its strategy. It raised its oil and gas production target from 1.5m barrels a day by 2030 to 2m barrels, saying Russia's war on Ukraine meant the world would need more sources of secure energy.
BP has come under pressure from investors to turn its back on its remaining green ambitions after the company's share price slumped by a quarter in the past two years, while the market value of rival oil companies has climbed.
Auchincloss, BP's former finance chief, told investors that the company's faith in the green energy transition had been 'misplaced' and that the company had gone 'too far, too fast' in recent years.
The green strategy faced two major obstacles: first, a post-Covid bottleneck in global supply chains combined with the recent surge in interest rates has made investing in green energy more expensive. Second, the recent surge in global oil and gas prices has made producing fossil fuels more profitable.
There is a third problem now, too: the notorious activist hedge fund Elliott Management has amassed a significant stake in BP, which could embolden it to call for sweeping changes to restore its lost value – including a breakup of the company and a boardroom cull.
It is not clear whether BP's investors are convinced by this plan.
Equity analysts at HSBC described the strategy as 'the fundamental reset we'd been waiting for'. In a note to investors the bank said: 'We've argued in previous research that capital allocation and a change in narrative were key to success of BP's long-awaited [capital markets day]. To be fair, it does feel like BP has heard the market's message on the need for a fundamental reset loud and clear.'
However, the company's share price fell 3% after it unveiled the new strategy. This may reflect short-term frustrations over BP's plan to reduce its share buybacks to no more than $1bn a quarter, down from $1.75bn previously, to shore up its balance sheet. But it may also reflect investor fears that the plan offers too little, too late.
There has been outrage from climate campaigners, with protest plans targeting the company's London HQ emerging hours after the strategy was announced.
Charlie Kronick, a senior climate adviser for Greenpeace UK, said the reset was proof that fossil fuel companies 'can't or won't be part of climate crisis solutions'. He called on the government to 'ensure companies like BP pay their share for the climate damage they're causing'.
The plan could be bad news for BP's long-term financial health, too, according to Mark van Baal, the founder of the shareholder action group Follow This. He said BP risked 'a dramatic decline in share value' as the reality of the climate crisis became apparent. 'Sooner or later oil companies will be held liable for the costs for climate damage,' Van Baal said.