BP at risk of takeover without renewed oil and gas focus success

Sky News

11-02-2025

It is nearly five years to the day since Bernard Looney, the then new chief executive of BP, set out a radical strategy for the oil major to go net zero by 2050.
Under that strategy, BP would invest more in low carbon energy sources and less in oil and gas, even to the extent of leaving in the ground some of the oil and gas it had originally planned to extract.
Investors were initially sceptical but prepared to give Mr Looney the benefit of the doubt and particularly when, a year later, he was able to argue that things were turning BP's way with, for example, the US rejoining the Paris climate agreement.
Today, though, it feels as if BP is repudiating all of that as the company promised to "fundamentally reset" its strategy.
A capital markets day, due to take place on 26 February, is expected to announce that BP is reducing its low carbon investments in order to focus on its core oil and gas assets.
Murray Auchincloss, who succeeded Mr Looney at the end of 2023 after the latter failed to disclose relationships with colleagues to the board, said this morning: "We have been reshaping our portfolio - sanctioning new major projects, and focusing our low-carbon investment - and we have made strong progress in reducing costs.
"Building on the actions taken in the last 12 months, we now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns. It will be a new direction for BP and we look forward to sharing it at our capital markets update on 26 February."
That reset is expected to see BP abandon plans to reduce its oil and gas production over time.
The company had already reduced its renewables investment and spun off its offshore wind assets into a separate joint venture with Japanese partner Jera. The reset may even see BP abandon a pledge made by Mr Looney to reduce its oil production by 2030 to 70% of its level in 2019.
The company has already scaled back a pledge to reduce its carbon emissions by the end of the decade from 35-40% of 2019 levels to between 20-30%.
The news, while it will dismay climate activists, points to a new-found pragmatism at BP.
The company's share price has underperformed that of its rivals, particularly US players such as Exxon and Chevron, who have remained focused throughout on their core fossil fuel activities.
Meanwhile, it emerged over the weekend that Elliott Management, the feared activist investor famous for its campaigns at some of the world's biggest companies, had taken an undisclosed stake in BP, placing further pressure on management. Mr Auchincloss last month announced plans to cut BP's workforce by 5% - reducing the headcount by 4,700 - as he seeks to achieve $2bn worth of cost savings.
It is unclear what actions Elliott hopes BP will take but it would not be a surprise were it, for example, to demand BP demerges its renewables assets from its traditional fossil fuel assets to become a focused oil and gas company again.
Analysts have also speculated that Elliott may agitate for the removal of Helge Lund, BP's chairman, who was a key driver of the strategy previously put in place under Mr Looney.
Adding to pressure for change is the fact that the world has changed since Mr Looney's big announcement. Russia's invasion of Ukraine in 2022 highlighted the importance of oil and gas while Donald Trump is back in the White House and is promising to "drill, baby, drill", having already taken the US out of the Paris agreement again.
Ironically, given the revived emphasis on oil and gas, it was these activities which proved a drag on BP's earnings during the final three months of 2024.
Underlying replacement cost profit, the accepted industry reporting standard, fell to $1.17bn from $2.99bn during the same period in 2023 due, among other things, to weaker refining margins. For the year as a whole, underlying replacement cost profit fell to $8.92bn from $13.84bn in 2023.
Investors were less focused on those numbers today. For them, all eyes are now on 26 February. Longer term, unless Mr Auchincloss can get the share price higher, BP looks to be a sitting duck for a possible takeover.