Murray Auchincloss promised he knew “exactly what we need to do to grow the value of BP” when he was formally appointed chief executive of the UK oil group this time last year.
It hasn’t worked. BP’s shares have dropped more than 7 per cent over the past 12 months, while its biggest rivals ExxonMobil, Chevron and Shell have all risen by 8 per cent or more, as investor concerns mount over BP’s vague strategy, stubbornly high debt and persistently disappointing results.
“The market is telling us something has gone badly wrong at BP and it’s not at all obvious from the outside what that is and why,” said one investor, adding: “Murray has a number of very strong qualities . . . but I don’t think he has someone with him who is a strategic visionary who can captivate the company with a vision of what BP is going to look like in 10 years.”
As pressure mounts on Auchincloss to turn things around, he had been due to push the investment case for the company at a capital markets day next month in New York. But the bad news keeps flowing, with BP on Tuesday postponing the event and switching it to London to allow the chief executive to recover from a medical procedure.
An understated Canadian who was previously at US oil group Amoco, Auchincloss arrived at BP in 1998 when the two companies merged to create the world’s third-largest listed oil company.
The contrast between then and now is stark. Following the Amoco deal, BP was neck and neck with Exxon in value. Today the US oil major, which merged with Mobil in 1999, is worth almost six times more than BP, whose market capitalisation of just £68bn is less than half its 2001 peak of £146bn.
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In the wake of the Deepwater Horizon oil spill in 2010, Auchincloss became chief of staff to then chief executive Bob Dudley.
The disaster, which left BP with a $62.5bn bill that it is still paying off today, is seen by many inside the company as the turning point in its fortunes, forcing the sale of prized assets and leaving BP with less room than its peers to pay down its debt.
Auchincloss was chief financial officer under Bernard Looney before winning the top job after the Irishman’s unceremonious removal at the end of 2023.
According to Helge Lund, BP’s chair, Auchincloss was one of the “chief architects” of the radical plan unveiled by Looney in the middle of the Covid-19 crisis to transform the group into an “integrated energy company”, cutting oil and gas production significantly by 2030 and building up a portfolio of green energy businesses.
The oil and gas business has bounced back strongly since — but Auchincloss has so far declined to renounce Looney’s plan, despite a more difficult environment for renewables.
“The destination stays the same,” he said when he took the job, while conceding that the company needed to be more pragmatic as he pledged to cut costs and slim down the dizzying array of projects that BP had accumulated.
“The scale of the hopper we built in hydrogen and solar, in offshore wind, in oil and gas, everywhere you can see, we have tonnes of options to move forward,” he told analysts at his first quarterly report call as chief executive. “The big challenge is now to get the organisation to move away from origination to execution, that’s the big challenge,” he added.
Auchincloss has promised to lay out a medium-term strategy at the capital markets day but the patience of investors and analysts has worn thin after a series of disappointing results, thrown into sharp relief by Shell’s strong operational performance.
“The entire sector is grappling with this generational change,” said one analyst, who declined to be named. “But others are delivering quarter after quarter of good results, and their share buybacks are up and their debt is down, and they are beating expectations.”
In the five quarters Auchincloss has presided over since becoming interim chief executive in September 2023, BP has missed consensus expectations for its net debt four times, for revenue and operating cash flow three times and for profits twice.
It has had to make “net adverse adjustments” to its earnings in each of the past four quarters, largely made up of writedowns and losses, adding up to a total of $6.6bn.
At BP’s last quarterly results in October, Auchincloss also spooked the market by suggesting that BP’s promised $1.75bn of quarterly share buybacks would be reviewed in February. Shares fell 5 per cent on the day.
“There has been more ambiguity in the investment case in 2024, not less,” said Biraj Borkhataria, an analyst at RBC Capital Markets.
In the past six months, the share of analysts assigning a “buy” rating to BP has more than halved to 36 per cent, according to Bloomberg data, and many of BP’s largest shareholders have sharply trimmed their stakes.
Meanwhile, BP has continued to spend heavily on the energy transition, pushing up its debt even as rivals pay theirs down. Auchincloss says BP needs to be able to sell multiple types of energy to customers that have made their own climate commitments.
In the past five years, BP has done eight big “low carbon” acquisitions, paying out $9.4bn in cash and taking on more than $6.6bn in net debt.
Without those deals, analysts at Barclays speculated last month, net debt would now be closer to $20bn-$21bn and the company would be saving about $700mn a year in interest charges — or it could have bought back more than a fifth of its shares, cutting its $5.5bn annual dividend bill by $1.2bn.
In Auchincloss’s first year, BP bought its joint venture partners’ share of both solar business Lightsource BP and a Brazilian biofuels business, paying out a total of $1.1bn in cash and consolidating $4bn of net debt.
While Shell has managed to reduce its debt pile since the start of 2022, a period of booming oil and gas prices, by about $9bn, BP’s debt is estimated to have risen from roughly $36bn to $38bn in the same period.
“You don’t know how long the good times are going to last so management teams should be using high commodity price environments to significantly reduce leverage and that didn’t happen,” said Borkhataria.
Looking forward, there are fears that BP will be unable to maintain its current level of shareholder returns if oil prices move lower.
Few expect refining to be a strong business this year, and oil and gas trading, which produced stratospheric returns in the volatile years after Russia invaded Ukraine, is now returning to earth.
But Auchincloss has also shown that he is willing to take action to strengthen BP’s balance sheet.
At the end of last year, he spun off its offshore wind business into a joint venture with Japanese power company Jera, in a stroke removing both debt and future capex commitments from BP’s books. Investment bankers hinted that BP plans to repeat the trick soon with Lightsource BP.
Much of the bad news may be priced into BP’s stock, said analysts, most of whom now have a neutral rating on the company. If BP signals next month that it will abandon some of its most expensive low carbon pledges, or hints at plans to maintain returns at current levels, investors may be heartened.
“The shares have underperformed to such a degree that BP doesn’t need to be the best company in the world, it just needs to be incrementally better,” said Borkhataria. “On the sum of its parts, it is definitely worth more than its share price. The question is whether you can realise that.”
