BP is on the verge of unveiling its financial results, with a significant drop in profits compared to the previous year anticipated. However, the real challenge facing the oil giant extends beyond financial figures. Having navigated an embarrassing misconduct scandal, BP now grapples with uncertainties about its future strategy. Increasing pressure from investors urges the board to reconsider its environmental commitments and boost fossil fuel production.
Amidst this backdrop, Bluebell Capital Partners, a London-based hedge fund, recently cautioned BP against committing to a future marked by declining fossil fuel production. The 30-page letter, dispatched shortly after Bluebell Capital Partners acquired a stake in BP last October, underscores concerns about the company’s trajectory. This unease was triggered by the sudden departure of Bernard Looney, BP’s former CEO and architect of its net zero commitments, who resigned due to personal relationship disclosures.
In early 2020, Looney pledged a 40% reduction in oil and gas production by 2030, only to later revise it to a 25% decline amidst global energy market fluctuations. Despite the leadership transition, Murray Auchincloss, Looney’s successor, maintains that there will be no alterations to BP’s strategic direction. The challenge for Auchincloss lies in balancing the desire of some shareholders for a return to conventional practices against BP’s substantial investments in green energy projects, such as costly offshore wind farms.
Auchincloss cannot ignore BP’s lagging share price compared to industry rivals, often attributed to the company’s green agenda. While BP’s shares trade at pre-pandemic levels, ExxonMobil has witnessed a 40% surge in its share price during the same period.
Looking ahead, Auchincloss faces the task of charting a course for BP. Energy market prices have favoured polluters in the aftermath of Russia’s war on Ukraine, but uncertainty about future fossil fuel demand has prompted shifts in global energy policies. Notably, Saudi Arabia, the world’s leading oil exporter, has directed its state-owned company, Saudi Aramco, to halt a significant production capacity increase. This decision reflects an acknowledgment that global oil demand is uncertain, given the economic slowdown and the impending peak in consumption due to the rise of electric vehicles.
Similarly, the Biden administration in the United States has announced a pause on gas exports, aligning with changing market signals and the need to assess the climate impact of new projects. This move complements a broader shift away from fossil fuels, as the global gas market already has sufficient infrastructure to meet demand until 2050, even without increased climate action, according to the International Energy Agency (IEA). As renewable energy claims a growing share of electricity generation, the need for gas-fired power is expected to decline.
In the face of these global developments, Auchincloss may find that Bernard Looney’s green energy strategy, despite initial scepticism, could prove beneficial for BP in the long run. The evolving energy landscape and increasing emphasis on sustainability may validate the company’s commitment to a greener future.