BP’s new strategy is “exciting”, said chief executive Murray Auchincloss at one point during Wednesday’s long City presentation. Did the stock market agree? Hardly. Even after he ditched the climate goals, and vowed to pray solely at the altar of shareholder value, the shares fell by 1.4% on a day when the FTSE 100 index was up. The rotten share price, down by almost a quarter in the past two years, is a very long way from being “fundamentally reset”.
The strategic U-turn itself, one can agree, is far-reaching. A company that until recently was still mouthing (just softly) former boss Bernard Looney’s old 2020 refrain about “reimagining energy for people and our planet” has relegated investment in low-carbon energy to 5% or less of the overall budget. Even that portion will need to be “underpinned by government support”, the finance director emphasised. And, having bought full control of solar developer Lightsource only last year, BP now wants to find a partner to share the capital load.
Meanwhile, spending on oil and gas is being boosted by 20% versus previous targets. Looney’s old idea that fossil fuel production would fall to 1.5m barrels of oil a day by 2030 has been thrown out of the window. The new target is 2.3m to 2.5m barrels a day by the same date, with increases possible thereafter.
The rejigged numbers enraged environmental campaigners, understandably so – BP sold them a pup in 2020. “Our optimism for a fast transition was misplaced and we went too far too fast,” argued Auchincloss, blaming Covid, Russia’s invasion of Ukraine and governments’ waning appetite for decarbonisation for the abandonment of BP’s climate pledges.
He’s correct that those factors lie behind the continued rise in global fossil fuel consumption, but BP’s point, back in 2020, was that it was going to cut production in all circumstances. An honest presentation (and Auchincloss, remember, was one of the architects as the finance director) would have admitted that the visionary green stuff depended on the share price vaguely keeping up with oilier rivals. It hasn’t, thus BP is being forced into the strategic U-turn that Shell performed, with less drama and without an activist investor on its tail, about two years ago.
One big difference, though, is that BP is carrying proportionally more debt. That is why it is volunteering to sell lubricants business Castrol, a perfectly decent financial performer, and a share of Lightsource. The aim is to raise $20bn ($15.7bn) from disposals by 2027, which is probably the earliest the balance sheet could be considered to be reset.
It all means that distributions to shareholders – the bit that the core investors care about – came out at an underwhelming level. Share buybacks, Big Oil’s main symbol of financial virility these days, will be no more than $1bn a quarter, down from $1.75bn at present. Meanwhile, even within the renewed focus on oil and gas, production levels will actually go roughly sideways from today’s levels, which may not excite those shareholders who want to see growth. The whole financial frame is also predicated on oil and gas prices remaining roughly where they are today, which is not a given.
Financial recovery for BP, then, is still a way off. Auchincloss has served up most of the U-turns the City was demanding, but still needs at least two years to repair the balance sheet and perform more cost-cutting. A reset in the chair’s seat would help on the credibility front in the short term because Helge Lund, the incumbent, is equally tied to the broken green promises and the share price failure. The rest of it looks a long haul – still.
Article by:Source: Nils Pratley
