BP’s green pivot has backfired spectacularly, hammering profits and leaving the company vulnerable to a hedge fund siege, writes Jonathan Leake in the Telegraph. Here’s an excerpt:
Addressing journalists and executives at the Royal Lancaster Hotel overlooking Hyde Park, Bernard Looney, BP’s new Chief Executive, urged them to “reimagine” his company as a champion of green power.
By 2030, BP would have cut oil and gas production by 40%, he pledged, with the lost fossil fuel income replaced by wind farms, solar parks and biofuels made from plants.
He said: “BP has been an international oil company for over a century… Now we are pivoting to become an integrated energy company.
“We believe our new strategy provides a comprehensive and coherent approach to turn our Net Zero ambition into action. This coming decade is critical for the world in the fight against climate change.”
Five years on from that speech in February 2020, the company is beleaguered by a ruthless activist investor, under pressure to boost its flatlining share price and considering a return to the oil and gas exploration that made it so successful to begin with.
The abrupt turn follows decades of crisis at one of Britain’s most venerable institutions. Today, its future is more uncertain than ever.
The Net Zero plans unveiled by Looney have hammered profits and generated intense speculation about a takeover, break up or even a merger with arch-rival Shell.
This month the fears became real with revelations that Elliott, a Florida-based hedge fund and corporate raider, has built a £3.8 billion stake in BP – and is laying siege to the company.
On Wednesday, BP will face the ultimate test at its capital markets day when Murray Auchincloss, the company’s current chief executive, will seek to persuade sceptical investors that he can deliver a “fundamental reset”.
To win round doubters, he is expected to announce a major break with the last five years – shifting away from Net Zero and back towards its oil and gas heritage.
But many in the City are asking how a company of BP’s size and stature has found itself in this position in the first place….
BP’s Net Zero pledges were backed by precise numbers.
Looney promised that by 2030 BP would boost investment in renewables tenfold from $500 million (£395 million) to $5 billion and build windfarms and solar parks with a capacity of 50 gigawatts – roughly enough to supply the whole UK on a windy and sunny day.
Over the same period it would slash oil and gas production from the equivalent of 2.6 million barrels of oil a day to 1.5 million. Refining throughput would drop from 1.7 million barrels a day to just 1.2 million. …
It did not take long for problems to start emerging.
After Russia invaded Ukraine in February 2022, oil and gas prices spiked. The surge rained cash down on fossil fuel producers, including BP. However, it raised questions as to why the company was pulling back from such a profitable market.
In February 2023, after a blockbuster $28 billion profits for 2022 linked to the global energy crisis, Looney was forced to slash his pledge to cut production by 40% by the end of the decade to a more modest 25%.
BP’s shareholders had realised that the green spending they supported in 2020 had halved their dividends. Total shareholder returns had underperformed Shell by 15%, France’s TotalEnergies by 30%, Chevron by 60% and ExxonMobil by 100%. …
Few of Looney’s 2020 promised renewable energy projects have materialised.
Earlier this month BP used its 2024 results day to announce that those that have been built – such as its 10 US windfarms – are to be sold. Its other wind assets (mostly planning approvals, including around the UK), are to be shunted into an independent joint venture.
BP Lightsource, BP’s solar subsidiary, is still building solar farms – but these are then sold on, meaning no long-term investment or income.
Pushed by analysts, Auchincloss, Looney’s replacement, confirmed a halt to all investment in wind and solar. “We have completely decapitalised renewables,” he said.
The same results showed BP made $8.9 billion in underlying profit compared with $13.8 billion in 2023 – its worst annual result since 2020, the year of the pandemic.
In response, Auchincloss promised a wave of new oil and gas production, including BP’s sixth hub in the Gulf of Mexico. The Kaskida development will soon be producing 80,000 barrels of crude oil a day, with other developments planned in Iraq, India, Brazil, Egypt and the UK’s North Sea.
Overall, he has suggested BP’s oil production will rise by 2-3% a year until 2030.
All that, say analysts, completely contradicts the “zombie” Net Zero strategy bequeathed by Looney – as well as offering a strong clue as to what Auchincloss’s “fundamental reset” will include – a full-blooded return to oil and gas.
Worth reading in full.
“Five years on from that speech in February 2020, the company is beleaguered by a ruthless activist investor, under pressure to boost its flatlining share price”
Flatlining? Here is how it has performed over those 3 years. Not bad!
Shell is 41.48% over the same period.
12% in 5 years?
Stokes revealing he knows as much about financial matters as he does about Climatology.
BP stock is also yielding over a 5% dividend, so not terribly bad. It’s dividend seems to be increasing slowly over recent years as well.
https://www.nasdaq.com/market-activity/stocks/bp/dividend-history
It’s not really IELDING a 5% dividend, it’s PAYING a 5% dividend. The question is can it continue to pay that while blowing billions on non-profitable on “green” fairy tales.
Fair point. I was just trying to convey that its dividend augmented its low price appreciation.
Of course, timing is crucial. To the extent that the dividend is paid at the expense of future earnings, then it’s a dog. My hindsight is generally accurate.
. . . including compounding and dividend reinvestment? What’s that? . . . something like an average annual ROI of 2.3%, which hasn’t even kept up with inflation!
He didn’t say ‘flatlining since 2020’. I can’t see any improvement since 2023. Like climate statistics, it all depends on the starting point you select. If you look at a more long-term graph of BP’s share price you can see that you have selected the lowest level since 1995 as your starting point. All of the rise up to 2023 simply takes the share price back to the level of 2018 and still below the highest level it reached in 2006.
Well as you know every ‘climate crisis’ cheerleader is as a hazard of their pet “cause” a master of cherry picking.
“If you look at a more long-term graph “
Yes. But the shift to renewables stated five years ago.
Why don’t you extend the graph backwards and then graph inflation at same time 🙂
Oh someone did it for you below.
No, it didn’t. It started under Browne with Beyond Petroleum back in 2001.
Flatlining:
exactly! and don’t forget the PE ratio right now is 240!
For a mature industry such as oil and gas, PE should be somewhere around 10.
That works out to about 2.25% annual. And then there is inflation. 😉
But also a 5% dividend!
Inflation is 5% 🙂
Was that out of current accounts or previous years’ pay outs to support them?
One, the standard of comparison would not be absolute but its performance against peers, eg Shell and Exxon, operating in the same market environment. You can tell if you run it that BP share price has done much worse over the last five years. In large part, though not solely, because of the renewables project.
I never believed in it. Whatever you think of the business merits of the renewables business in itself, it was a segment that BP had no transferable expertise in. And when you hear that management is attempting to respond to difficulties in its core business by diversifying, then watch out. Most of the time this will turn out to be a confession of failure in advance.
An example of this in the UK has been Sharon White’s attempt to diversify John Lewis into the housing business. A confession that she had no idea how to fix its core retailing business. Diversification of this sort is never a solution. Fix the basic business, the problems with it are still going to be there and in the same form and severity after you diversify. Its just that your diversification efforts will be disadvantaged by being yoked to the failing core. You cannot diversify your way out of core business problems.
So it was intrinsically a terrible idea to diversify out of and reduce the size of the core business. But how did it go? Was this an exception to the general rule?
The way you assess the venture into renewables is to look at the investment and the returns over the period. And the prospects of course. I have not done that, but my impression is that they were taking a bath on renewables, and that far from the diversification helping the core, it was drawing off resources including management time from it, thus making whatever the core problems were a lot worse.
Evidently Elliott agrees and thinks there is real money to be made by reversing direction and getting back to oil and gas. I suspect the other shareholders will agree with them. Its interesting that the minute they started to announce that kind of move, the share price started to rise.
By the way – other thing to look at is how the large players in renewables are doing. My impression is, not well. Cancelling projects and cratering share prices. But maybe that’s only the ones I read about. If the sector is doing well despite those failures, it would be interesting to hear.
How are the large players in renewables doing?
Well Equinor is scaling down investment in renewables and low carbon solutions and has cut its investment over the next 2 years by 50%.
In August last year the company pulled out of offshore wind projects in Spain and Portugal and closed its Vietnam office. Head of renewables, Paal Eitsheim told Reuters “It’s getting more and more expensive and we think things are going to take more time in in quite a few markets around the world” He also said they were considering exiting additional markets.
Early in February 2025 Orsted said it was reducing its investment programme to 2030 by 25% and lowering the previous target for installed capacity by that date. It had previously scrapped plans for 2 projects off the coast of New Jersey
GE Vernova announced last October that it was restructuring and making up to 900 workers redundant in an attempt to return to profitability and said that many of its competitors faced similar problems.
Shell also pulled out of projects in both the US and South Korea.
Meanwhile Chinese firms seem to be prospering, in part due to subsidies, cheap loans from Chinese Banks and offers of deferred payments which are not allowed under OECD rules.However it is difficult to ascertain if all the wind farms they are building in China are actually producing any electricity or are analogous to their ghost cities.
“One, the standard of comparison would not be absolute but its performance against peers”
Yes, but the headline here describes it as ruinous, and it isn’t that.
It is that .. what the author can’t account for is your special views 🙂
Nick,
I see no upside in investing in renewable energy. Heck, when you look at these renewable energy stocks, their performance over the years has been quite poor. Investing in a business model that is dependent on the wind blowing and the sun shining in my mind is quite risky. How could you possibly forecast your business model on this unpredictably. Battery back-up is no better given the high upfront costs and then the threat of these battery farms going up in flames. It’s astonishing that a business would make decisions that in my mind are quite unsound and frankly irresponsible to its shareholders and its long-term survival. These leaders and corporate CEO’s who made this decision should step-up and explain the rational to their shareholders why this business decision was made at all in the first place. There was no return on investment whatsoever. The entire CO2 climate change narrative is frankly idiotic!
“Investing in a business model that is dependent on the wind blowing and the sun shining and trillions in subsidies in my mind is quite risky.”
Enhanced it. 🙂
Yes, because at some point the people being taxed to make the wealthy wealthier at their expense push back. Especially when they notice the promised “crisis” never materializes and the touted “solutions” couldn’t solve the imaginary “crisis” even if it was real.
I am under the impression that wind and solar revenues are totally dependent on govenment mandates and subsidies. I don’t believe that there is a real market for energy that cannot repond to load demand. Value would be negative in a free market.
The only sensible investment in batteries is for arbitrage.
Click on the Max graph which goes back 45 years and clearly BP and TOTAL under perfomed XOM and Shell…..and the under performers went “green” and lost a lotta green.
That’s barely keeping up with inflation.
I guess we can add finance and economics to the list of things Nick knows nothing about.
Plus 5% dividend.
How does that compare to other companies?
Unless it’s better than average, then it isn’t a plus.
Why does Nick Stokes get to post images while others cannot?
It’s easy. I responded to his cherrypick above. I just screencapped the BP stock price going back as far as it went (you can screencap anything, or use an image you already have), then click the small image icon in the lower right corner. Go to the image you want to post, it will ask you to OPEN. Click on that button and Post Comment. Just to rub it in – Voilà:
There is no image icon in the lower right, others have reported the same problem.
At the extreme lower right corner.
This is Mt. St. Helens in recent a year.
also managed an edit! chase the gear icon on the right which you find by hovering there – and clicking on it gives an edit function
I’m running a Win10 sys with Chrome browser.
I do have a WordPress account and log into WUWT using that.
Brave browser on my laptop does not show any icon such as that you describe.
I don’t have it either. (FF mac and FF linux)
Any chance it’s a function of subscription level?
Hmmm, interesting. I have a few Macs working on Catalina, Sonoma, and I think another one too, and I’m using Chrome. The icon is on all of them. I wish I could help further.
Nope, I don’t get the button (I’d post a screenshot but…).
There used to be an image icon in the lower right hand corner of the text box that I used to post images, but there is no longer an image icon in the lower right hand corner.
All the other
editingicons are still thereI was wondering if it was a browser related issue, but no, none of my browsers show an image icon any more. So I cannot post images any longer as well.
I’ve searched wordpress for a solution for users and there is nothing mentioning it, just for administrators to enable it. So I think it is an administration issue affecting some users and not others.
Story tip: image Icon on “Watts Up With That” wordpress is broken for some users.
Maybe that will get attention.
I don’t see the icon either. PC with Chrome.
I also can’t post YouTube videos.
It seemed like it disappeared at the same time as the crossover to wordpress.
12.95% over five years is 2.59% a year, or less than an investor could get from a risk-free bank CD with FDIC insurance. It probably just kept your investment even with inflation if you don’t count that had to pay income tax on your gain if you sold. And if you had bought it just for the dividends you would have made more money with less risk from corporate bonds or preferred stocks.
“…By 2030, BP would have cut oil and gas production by 40%, he pledged…”
Bottom line is that BP was an oil company that had a plan to go out of business.
Not all shareholders are on board with that.
Geez, Dont take any investment advice from N Stokes….13% in 5 years in a buoyant oil mkt is hardly doing well. Arch rival Shell is up 51.94% over the same period.
The US form of the stock: I bought 200 sh at $33.175 on 21 Jun 2016
Sold the stock at $38.70 on 14 Jan 2020
In February, 2020, the lowest price was $31.53. The highest price was $37.67
Today, the stock is at $33.23
Nick, you don’t get much more of a flatline than that.
Even the BBC reports that its profits and share price have been much lower than its rivals – that’s the significant thing.
Yep, NYSE shows BP is basically flat-lining
Too late.
It’s not until Net-Zero slaps these green loony CEOs in the face with a dose of reality, does a company wake up and realize they’ve committed corporate Seppuku.
Net-Zero is dying, like we all knew it would.
When will the death of Net Zero slap UK politicians in the face?
Let’s ask Nigel.
Compare that to Shell
To quote the Central Scrutiniser…
We tried to warn them. Didn’t we?
Yes, alarms have been raised for years.
It takes some people longer than others to see the reality.
When you have a vested interest in a certain outcome, it takes even longer to face up to reality.
When you have a vested interest in an impossible outcome it’s a matter of when…. reality bites
that speech in February 2020,
Date circled on the 10 year NYSE chart. 😉
That’s the Covid blip, you can pick almost any energy stock over that time period and see the same blip. Same for the S&P 500.
BP is doing a Gerald Ratner
Gerald Ratner still reeling 30 years on from gaffe that sank his jewellery empire in a matter of seconds https://www.thisismoney.co.uk/money/markets/article-9505003/Gerald-Ratner-reeling-30-years-gaffe.html
No easy way back.
I’ve often used the magnificent BP statistic pages for world hydrocarbon facts and the telling little graphs about global consumption out to 2050 etc etc. Didn’t BP’s CEO ever take a look at them himself? Weird .
Looney transferred that operation to the Energy Institute (formerly the Institute of Petroleum, and now headed by Juliet Davenport, former CEO of green energy company Good Energy), which unfortunately lacks any expertise in the upstream industry it seems. Estimates of oil and gas reserves have not been updated since the transfer.
https://www.energyinst.org/statistical-review
BP made the business rookie mistake of thinking they could make and sell products to a market they could also create.
Markets are organic, they are spawned by NEEDS requiring SOLUTIONS.
Who / where are the legions of potential customers who wake up every morning thinking –
“jeez, I’d give my left ball for a good kW of solar or wind electricity instead of this coal, gas & oil rubbish!”
No, different mistake. Thinking they could successfully enter a business segment where there were established competitors, just because the products were called by the same general name as their existing business.
They were trying to enter the electricity generation business from the oil and gas production and refining business. The two have nothing in common, despite being loosely called the energy sector. They had no competitive advantage in electricity generation.
Its like thinking you can go into auto manufacture from the railroad business because both are generally thought of as ‘transport’.
My general point is that it’s insane to undertake investment and manufacturing of products that have no discernable evidence of having a solid basis of need.
“Make what you’ve sold, not try to sell what you’ve made” was the lesson many successful businesses offered to newbies.
BP since 2000 – down 1.47% annually
Total stock index since 2000 up 7.84% annually.
remember it was in 2001 that BP went “Beyond Petroleum” with their snake of a CEO John Browne, the George Bush lookalike. yeah, that really worked out well for ’em. Investors have LOST money since then.
If they actually lived up to that slogan, they would be what you call “bankrupt.”
Imagine that, they were wrong. And one wonders how such a large technology based corporation would allow itself to get sucked so far into the Net Zero scam. If it gets gobbled up by pirates I bet they take the company back to what made it profitable to begin with.
It’s hard to imagine a more appropriate sentence.
Why I call it “Nut zero”
; >)
I believe that’s the “Left Nut zero”.
Simple thing is, UK has halved its CO2 production since its peak, so where is the climate dividend? Apparently, the climate risks are even worse now! But what we can see in the UK is the loss of our industrial base and affordable heat for our homes.
Has anybody calculated the reduction in our CO2 emissions and compared them with the CO2 emissions in products we import from China etc. (Wind generators, solar panels and EVs?)
“so where is the climate dividend?”
You mean you can’t smell the defeat of climate looming in the air?
Ironically enough, BP liquidated its PV manufacturing in the USA and UK over 15 years ago.
For many years now, BP has tried to appease the enviro-zealots over Clima-Change™, but BP still ended up being sued at least 11 times (by my count) in US courts. They stand basically accused of paying skeptic climate scientists to spew disinformation to undercut the ‘science consensus,’ e.g. as seen in the latest State of Maine v BP. What BP needs to do is ditch their enviro-political correctness position, and instead grow a spine and file Motions to Dismiss, saying that these cases’ evidence for their accusations is totally without merit. Trials can’t proceed if judges determine that core accusation evidence is worthless.
I recall back in the early 90s when Algore published is climate fantasy propaganda there was a rumor the British Petroleum (BP) was rebranding itself as Beyond Petroleum.
The implosion has its roots decades ago.
ManBearPig continues to live on in Fantasyland; his own and other’s! Apparently the BP CEO believes in fairy tales, too; or maybe just the fairys and unicorns! Not a good business plan!
When I read or hear “pivot”/”pivoting” in any non-sports context, the needle on my BS meter goes into the red.
And the morons running the U.K.still prattle on about us becoming a “Green Superpower” whilst we all become poorer and poorer. A slow motion disaster of epic proportions.
It seems that BP, and in general solar and wind, has crossed a tipping point.
It began with John Browne’s Stanford University speech in 1997
http://www.masterresource.org/bp-public-policy/john-brownes-1997-stanford-speech/
I imagine Looney toon’s company as bankrupt.
The clue was in the name.
“Bernard Looney, BP’s new Chief Executive”
The name should have been a warning.
I’ll take “stranded costs” for 500 Alex.
Apparently we are supposed to have closing in on 11 trillion dollars worth of stranded costs according to the guardian and Nature.
https://www.theguardian.com/environment/ng-interactive/2021/nov/04/fossil-fuel-assets-worthless-2036-net-zero-transition
Like Nick there economic knowledge is just a bit out.
Did you mean: ‘Like Nick there,(comma)… or ‘their economic knowledge’… ??