BP to Slash Renewable Investments, Returning Focus to Oil and Gas

• BP is planning to reduce its green investments and concentrate on the ramping up of its oil and gas operations for the sake of improving earnings, on which expectations are running high.
• On the one hand. This move was precipitated by the desire to get the business back on its feet financially—an expectation that BP has since proven disappointing.

One of the largest energy companies in the world, BP, is largely expected to announce a drastic reboot of strategy with heavy cuts to renewable energy investments and a doubling down on hydrocarbon investments. This move has been made as a response to pressure from frustrated investors who have been equating low profits and unsteady share prices of BP with those who are in existence.

A Green Aversion-Turn 

Just as five years ago, BP had long waved the flag with some of the climate sector’s most aggressive goals; the prospect of cutting full-scale oil and gas production levels by up to 40% by 2030 was seen as alive and well. Concurrently, additional monies would be stuffed into renewable energy. But only last year, BP went back and underhandedly reviewed its original formulation for meeting the newly imposed 40% quota to reduce itself by just 25%! Now, it is as certain as the blues in the sky to assume that BP will soon stop taking into consideration its green goals, beyond turning its focus entirely on abandoning them.

Sources within BP have learnt that company CEO Murray Auchincloss is readying himself to announce a “fundamental reset” of the BP strategy, including cutting renewable investments by more than half. 54 The refocus on traditional fossil fuels accommodates this progression in investor sentiment whereby the profitability of oil and gas is seen as higher in the current economic boom.

Ahead with The Pack: A Sector-Shaking Shift

This restructuring is not just about BP. Other members of its club have also shown signs of turning their commercial strategies around to attract more oil investments at the expense of renewable sources. To this list, we can add companies like Shell and Statoil, which have also toned down investments in renewable energy while turning up the heat in oil. Let us add those international political developments, like the current American president’s push for domestic drilling, that contribute to anything that has oil as its chief theme again.

Yet the financial poorness that went along with some of BP’s activities so far has claimed a big space in moving the scene another way. The drop in net income from $13.8 billion last year to $8.9 billion this time around is stark from this perspective. The return to shareholders of 36% has been through five years, significantly lower than the 82% and 160% taken by Shell and Exxon shareholders, respectively.

Pressure from Heavy Hitters

Pressure on Auchincloss is not only coming from the reported profits. An influential activist investor group, Elliott Management, which has recently acquired a 3% stake in BP, is pressing with its demands for more investment in oil and gas. They claim that BP’s green strategy has not been so financially successful; therefore, it’s high time they came up with another strategy.

Elliott is known for effusively confronting companies: earlier, the fund led two successful campaigns for Southwest Airlines and Honeywell’s Honeywell International. The investment has sparked speculation that BP could become a takeover target or that BP may consider relocating its stock listing to the U.S., where oil and gas companies usually command higher valuations.

Rebel Factions 

Despite an increase in consolidation on this fossil fuel-orientated approach, some shareholders are still quite uncomfortable about what must appear to them to be a dramatic U-turn by the oil giant. A group of 48 investors has recently urged BP to let shareholders vote on any scaling back in renewable plans. One of the signatories, Royal London Asset Management, indicated that further investment in the ‘dying industries’ of oil and gas could eventually damage BP.

A further affront to BP is pronounced by environmental groups. Greenpeace UK has threatened that this new BP strategy could be opposed “at every turn” as governments may look to fossil fuel profits to finance solutions for extreme event recovery. BP is firmly requested by Charlie Kronick, Greenpeace’s senior climate adviser, to cease and abstain from U-turning towards all gun-ho.

Back to Petroleum?

The welcomed strategy change is a sharp contrast to BP’s earlier Beyond Petroleum vision, created more than 20 years ago by former CEO Lord John Browne. According to today’s trend, however, it seems that the company is heading “Back to Petroleum.” This has left shareholders running pell-mell toward the prospect, while others have been deep in disappointment.

BP is also exploring selling some non-core businesses; notwithstanding, it is considering selling its offshore wind and solar units. This sale is aimed at simplifying operations and concentrating on what the company and its administration see as high-profit ventures.

What’s Next for BP?

A target for raising low-carbon electricity production capacity 20-fold by 2030 is going to be abandoned. Auchincloss is due to explain the corporate strategy, opening the gates for more oil and gas output. Urban legend has it that the firm, as it cuts most assets, will also divest from nearly all non-clean infrastructure; no statement of fixed financial targets will be from now on.

This step is fraught with risk and is for sure debatable. Yes, in the meantime, a day trader might call it a wise plan to close down some of these openings to make a profit. Then the other part of the picture is those shareholders who will like what Coleridge and Lévi will miss. But for the ability to live, think, and speak as activists, their long-term interest depends on us fighting obesity and destroying Marine Ray for a first-class no-carbon policy, which should be allowed to live by their actions.

For as long as BP is at the fork, change is upon us; its judgments shall affect its financial fortune and thereby decide its part in the global energy transformation. The judgement of this change lies in whether it has turned out to be one of the crafty M&A deal forays or turned out to be an embarrassing step backwards.