BP says transition strategy ‘unchanged’ by leadership turmoil

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

BP remains wedded to its industry-leading commitment to cut oil and gas production, its new management said on Tuesday, as the company sought to reassure investors that the resignation of chief executive Bernard Looney would not derail its strategy.

At the start of a two-day investor event in Denver, BP’s interim chief executive Murray Auchincloss said the 113-year-old energy group’s “strategy, financial frame and net zero ambition are unchanged”.

“BP remains focused on delivering its strategy safely, with disciplined delivery, quarter-on-quarter, to meet 2025 targets and 2030 aims,” he said in a statement.

The investor meeting was initially intended as an opportunity for Looney to showcase BP’s extensive operations in the US, where it has invested more than $140bn since 2005. But the Irish executive’s sudden departure last month for failing to disclose relationships with colleagues and the subsequent resignation of Dave Lawler, BP’s top executive in the US, has thrown the oil supermajor into turmoil.

Ryan Todd, analyst at Piper Sandler, said: “The departure of executives Looney and Lawler weeks before the analyst meeting, along with increased speculation and focus on potential industry [mergers and acquisitions], threatens to overshadow any message the company is looking to communicate.”

News last week that ExxonMobil is in talks to buy Pioneer Natural Resources, a US shale producer valued at $55bn, sent shockwaves through the industry and sparked speculation of a new era of consolidation in the US shale sector. It is also refocusing investors’ attention to the strategies of the oil supermajors, including BP’s energy transition plan which is the most ambitious.

In 2020 Looney unveiled plans to cut BP’s oil and gas production 40 per cent by 2030, as part of a pivot to lower-carbon forms of energy. In February he scaled back this plan, indicating the company’s oil and gas output in 2030 would be 25 per cent lower.

The leadership changes have caused some investors to question whether BP’s strategy could change again under a new CEO, particularly in light of oil prices rises. Many US-based investors in the sector have highlighted the higher returns that oil and gas generate when compared to renewables.

David Cohen, a portfolio manager for Boston Partners, a hedge fund that holds BP stock, told the Financial Times that oil companies were experts at finding, developing and producing oil and natural gas. But he added that renewables generally offered lower returns, required different project management expertise and had different supply chains and end markets.

“I get why this is happening but it’s a lower-return, higher-risk strategy,” Cohen said: “It’s a trade-off that you make when going down that route: you may have a more sustainable business in the long term but in the near term you’re trading off profitability, expertise [and] execution to enter a low-return business.”

BP restricted access to the investor day event for the media, citing a lack of space at the venue. Unlike some public companies, it did not provide a livestream of the presentations or question and answer sessions.

One analyst at the event, who did not want to be named, said the oil major did not comment on the departure of Looney or Lawler in the initial presentations to investors.

Todd, who attended the Denver event, said US investors had been happy for the most part at BP’s perceived pivot in February when Looney said the company would invest more capital in oil and gas and some other legacy businesses than originally expected. But the big question for US investors is whether BP’s upstream portfolio can compete with rivals beyond a five-year time horizon, he said.

Todd said: “There are a lot of concerns about how the company has spent the last five years selling assets or underinvesting in that part of the portfolio, so the question is does BP have the assets and the resources to lean into the upstream side of the business for more than a just a transition period?”