Released March 05, 2025 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--BP plc (NYSE:BP) (London, England) made few new friends or converts after it held its investor day meeting February 26.
Environmental organizations blasted the company's plan to slash spending in clean energy and focus future efforts at increasing oil and gas production.
Investors were none too pleased either: they pushed the stock down 1% to 3% on the New York and London stock exchanges the day BP executives discussed how they planned to fundamentally reboot the lagging supermajor. An activist investor, Elliot Investment Management, L.P. (New York, New York), with about $70 billion of assets under management, may seek a seat on the BP board, to try to drive change from within. Elliott reportedly owns about $5 billion of BP's stock.
On February 26, BP executives said capital spending on renewable energy projects would be slashed $5 billion per year, to about $1 billion to $2 billion per year going forward. Company officials also said they would boost capital spending for oil and gas exploration & production (E&P) to $10 billion annually. The company also vowed to take a harder look at its downstream assets, specifically its ownership of lubricants company Castrol. "Significant" cost reductions also were promised.
The pivot back to BP's traditional core business comes about five years after a prior chief executive, Bernard Looney, announced plans to cut oil and gas production 40% by 2030. Now, under the new plan, BP plans to increase upstream production to about 2.3 million barrels of oil per day (MMBoe/d) to 2.5 MMBoe/d by 2030. Current production is about 2.4 MMBoe/d, according to the company's yearend earnings announcement.
Going forward, the company's E&P efforts will be focused on the U.S., where BP already is a big offshore producer, and in Middle Eastern countries including Oman, the United Arab Emirates and Iraq, Chief Executive Officer Murray Auchincloss told The Wall Street Journal. "It's a radical shift," he added.
BP's earnings last year fell nearly $5 billion, to approximately $8.9 billion from $13.8 billion in 2023. The company has long under-performed its peers in terms of profitability and stock price. Cost-cutting at the British supermajor is moving more slowly than at larger rivals, such as Exxon Mobil Corporation (NYSE:XOM) (Spring, Texas). For more on that, see February 13, 2025, article - Investors Greet Big Oil Earnings with Mixed Sentiments.
In the five years since Auchincloss' predecessor, Bernard Looney, unveiled a bold strategy to cut hydrocarbon production and embrace renewable energy, BP's shareholders have received total returns including dividends of about 36%. Shareholders in rival oil and gas companies, such as Shell plc (NYSE:SHEL) (London, England) and ExxonMobil, have seen returns of approximately 82% and 160%, respectively.
In addressing investors and bankers February 26, Auchincloss said: "Today we have fundamentally reset BP's strategy. We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency. This is all in service of sustainably growing cash flow and returns."
"We will grow upstream investment and production to allow us to produce high margin energy for years to come," he continued. "We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the (energy) transition, including through innovative capital-light platforms. This is a reset (for) BP, with an unwavering focus on growing long-term shareholder value."
BP officials said the company would take a "disciplined" approach to investments in businesses around the energy transition: there would be "selective investment in biogas, biofuels and electric vehicle (EV) charging; capital-light partnerships in renewables; and focused investment in hydrogen/CCS (carbon capture and storage)." Capital expenditures (capex) in energy transition businesses would fall to $1.5 billion to $2 billion per year, down about $5 billion from current investments.
BP also updated attendees at the investor day meeting about future capex plans overall: They will fall to $13 billion to $15 billion annually through 2027, down from slightly over $16 billion in 2024. Company officials are seeking "significantly higher structural cost reductions" of $4 billion to $5 billion by yearend 2027. BP will seek to divest about $20 billion of assets by 2027, including potential proceeds from selling Lightsource BP and lubricants company Castrol.
All of these actions should lower the company's net debt to between $14 billion to $18 billion by the end of 2027, down from approximately $23 billion at yearend 2024. It also promised investors "resilient" shareholder distributions.
In the February 26 investor day meeting, Auchincloss, who has been chief executive for just over a year, acknowledged that BP has misjudged the speed at which the world would transition to cleaner energy. "We found ourselves in a different place now, where nations are prioritizing affordability, assurance of flow and security of supply," he told investors. "The transition just is not being valued as much as it was five years ago."
BP's projections of global energy fundamentals--supply, demand and price--likely were affected by the U.S. presidential election of Donald Trump, a fan of fossil fuels but a foe of renewable energy sources like solar and wind. Prior to Trump's election, Russia's invasion of Ukraine three years ago scrambled the global energy picture, elevating security of supply to a top priority of companies and nations.
Global demand for hydrocarbons continues to rise, as strong growth in developing economies has more than offset any reduction in developed economies. Demand for renewable energy also continues to rise, though profitability has been elusive for some following the global supply-chain blockages that followed Russia's invasion of Ukraine in February 2022.
Analysts cautiously welcomed BP's approach, which had been largely expected. "We have disagreed with BP's policy and strategy over recent years, thus we are pleased to see this reset and reversion to focusing on hydrocarbons," analysts from Wells Fargo wrote.
But not all investors welcomed BP's new direction. In the run-up to the investor-day meeting, a group of 48 progressive investors called on the company to allow them a vote on any potential plans to move away from commitments to renewables, according to the British broadcasters BBC. The environmental group Greenpeace UK said the latest move was "proof that fossil fuel companies can't or won't be part of climate crisis solutions."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Environmental organizations blasted the company's plan to slash spending in clean energy and focus future efforts at increasing oil and gas production.
Investors were none too pleased either: they pushed the stock down 1% to 3% on the New York and London stock exchanges the day BP executives discussed how they planned to fundamentally reboot the lagging supermajor. An activist investor, Elliot Investment Management, L.P. (New York, New York), with about $70 billion of assets under management, may seek a seat on the BP board, to try to drive change from within. Elliott reportedly owns about $5 billion of BP's stock.
On February 26, BP executives said capital spending on renewable energy projects would be slashed $5 billion per year, to about $1 billion to $2 billion per year going forward. Company officials also said they would boost capital spending for oil and gas exploration & production (E&P) to $10 billion annually. The company also vowed to take a harder look at its downstream assets, specifically its ownership of lubricants company Castrol. "Significant" cost reductions also were promised.
The pivot back to BP's traditional core business comes about five years after a prior chief executive, Bernard Looney, announced plans to cut oil and gas production 40% by 2030. Now, under the new plan, BP plans to increase upstream production to about 2.3 million barrels of oil per day (MMBoe/d) to 2.5 MMBoe/d by 2030. Current production is about 2.4 MMBoe/d, according to the company's yearend earnings announcement.
Going forward, the company's E&P efforts will be focused on the U.S., where BP already is a big offshore producer, and in Middle Eastern countries including Oman, the United Arab Emirates and Iraq, Chief Executive Officer Murray Auchincloss told The Wall Street Journal. "It's a radical shift," he added.
BP's earnings last year fell nearly $5 billion, to approximately $8.9 billion from $13.8 billion in 2023. The company has long under-performed its peers in terms of profitability and stock price. Cost-cutting at the British supermajor is moving more slowly than at larger rivals, such as Exxon Mobil Corporation (NYSE:XOM) (Spring, Texas). For more on that, see February 13, 2025, article - Investors Greet Big Oil Earnings with Mixed Sentiments.
In the five years since Auchincloss' predecessor, Bernard Looney, unveiled a bold strategy to cut hydrocarbon production and embrace renewable energy, BP's shareholders have received total returns including dividends of about 36%. Shareholders in rival oil and gas companies, such as Shell plc (NYSE:SHEL) (London, England) and ExxonMobil, have seen returns of approximately 82% and 160%, respectively.
In addressing investors and bankers February 26, Auchincloss said: "Today we have fundamentally reset BP's strategy. We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency. This is all in service of sustainably growing cash flow and returns."
"We will grow upstream investment and production to allow us to produce high margin energy for years to come," he continued. "We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the (energy) transition, including through innovative capital-light platforms. This is a reset (for) BP, with an unwavering focus on growing long-term shareholder value."
BP officials said the company would take a "disciplined" approach to investments in businesses around the energy transition: there would be "selective investment in biogas, biofuels and electric vehicle (EV) charging; capital-light partnerships in renewables; and focused investment in hydrogen/CCS (carbon capture and storage)." Capital expenditures (capex) in energy transition businesses would fall to $1.5 billion to $2 billion per year, down about $5 billion from current investments.
BP also updated attendees at the investor day meeting about future capex plans overall: They will fall to $13 billion to $15 billion annually through 2027, down from slightly over $16 billion in 2024. Company officials are seeking "significantly higher structural cost reductions" of $4 billion to $5 billion by yearend 2027. BP will seek to divest about $20 billion of assets by 2027, including potential proceeds from selling Lightsource BP and lubricants company Castrol.
All of these actions should lower the company's net debt to between $14 billion to $18 billion by the end of 2027, down from approximately $23 billion at yearend 2024. It also promised investors "resilient" shareholder distributions.
In the February 26 investor day meeting, Auchincloss, who has been chief executive for just over a year, acknowledged that BP has misjudged the speed at which the world would transition to cleaner energy. "We found ourselves in a different place now, where nations are prioritizing affordability, assurance of flow and security of supply," he told investors. "The transition just is not being valued as much as it was five years ago."
BP's projections of global energy fundamentals--supply, demand and price--likely were affected by the U.S. presidential election of Donald Trump, a fan of fossil fuels but a foe of renewable energy sources like solar and wind. Prior to Trump's election, Russia's invasion of Ukraine three years ago scrambled the global energy picture, elevating security of supply to a top priority of companies and nations.
Global demand for hydrocarbons continues to rise, as strong growth in developing economies has more than offset any reduction in developed economies. Demand for renewable energy also continues to rise, though profitability has been elusive for some following the global supply-chain blockages that followed Russia's invasion of Ukraine in February 2022.
Analysts cautiously welcomed BP's approach, which had been largely expected. "We have disagreed with BP's policy and strategy over recent years, thus we are pleased to see this reset and reversion to focusing on hydrocarbons," analysts from Wells Fargo wrote.
But not all investors welcomed BP's new direction. In the run-up to the investor-day meeting, a group of 48 progressive investors called on the company to allow them a vote on any potential plans to move away from commitments to renewables, according to the British broadcasters BBC. The environmental group Greenpeace UK said the latest move was "proof that fossil fuel companies can't or won't be part of climate crisis solutions."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
