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What is BP, where is it going and what it is trying to be? These sound like basic questions but since former chief executive Bernard Looney laid out an ambitious energy transition strategy in 2020, investors have not always been clear on what the European oil major is doing, and why.
No doubt Murray Auchincloss, who was appointed chief executive on a permanent basis in January, would argue he has been clear about BP’s strategic direction, even if its transition to an integrated energy company has been tweaked since Looney’s original blueprint.
Auchincloss makes a big deal of simplifying and focusing BP to deliver on promises of becoming a “higher value company”. In glossy marketing material, he states he is focused on delivering BP’s 2025 targets on profits and shareholder returns “and we are confident”. The trouble is, the market is not.
To be fair, Auchincloss is getting out of businesses that no longer make sense. This week there were several divestment announcements, including BP’s plan to sell its US onshore wind energy business, which owns 10 operating wind farms across seven states. In total, the assets have 1.7 gigawatts of generation capacity, of which BP’s share is 1.3GW.
BP started developing its US onshore wind business in the mid-1990s. These are non-core, mature assets that at some point will require more investment if existing turbines are to be replaced with newer, more powerful models. Given their age, they are unlikely to fetch the $2bn or so implied by a standard valuation of $1.5bn per gigawatt for new wind farms.
Auchincloss’s tidy-up job is doing little to halt the slide in BP’s share price. Falling oil prices have taken a chunk out of all the energy majors. Still, BP is underperforming rivals as investors worry about its 2025 promises: its target to generate total group ebitda of $46bn to $49bn by 2025 (versus $44bn in 2023) was set in the second half of 2023, when oil prices were still above $80.
Given oil’s retreat, it is increasingly unclear whether BP will be able to stick to its guidance of handing a further $7bn to investors through share buybacks in 2025. Those capital returns have served as a useful sweetener while BP tries to convince its energy transition strategy will come good.
Lower cash flows will, as Lex has already argued, force all oil majors that have relied on bonanza returns to find a new story to win over investors. The trouble is that BP’s was already a rather unconvincing tale.
nathalie.thomas@ft.com
