Proactive Investors - BP PLC US chair David Lawler has shot back at claims that the British energy giant is abandoning its transition from fossil fuels to renewable energy, despite scaling back its climate goals after delivering record annual profits for 2022.
Lawler told the Financial Times over the weekend that BP’s transitional strategy “has not changed at all”.
“We’re not going to deviate from our strategy,” Lawler said. “We’re not a renewables company. We’re not an oil and gas company. It’s an integrated company that will provide energy for the transition.”
Yet a glance at BP’s capex projections suggests that the company’s strategy has changed.
To BP’s credit, an extra US$8bn in investments in what it calls “transition growth engines” (TGEs) by 2030 was added to projections, though an equal US$8bn into oil and gas investments was simultaneously announced.
This has brought BP’s capex expenditure frame from US$14-16bn to US$14-18bn out to 2030.
BP’s TGEs are broken down into five segments:
- Bioenergy – to produce more renewable fuels made from waste or plants.
- EV charging – to accelerate the switch to electric vehicles.
- Convenience – to help make everyday life a little easier.
- Renewables & power – that can be used to power millions of homes and businesses with low carbon energy from the sun and wind.
- Hydrogen and carbon capture and storage – to help build the lower carbon energy system of the future.
In 2020, BP set out its ambition to reduce oil production output by 40% in 2030 as part of plans to become net zero by 2050.
Those 2030 targets have been reduced to around 25%, although chief executive Bernard Looney has reiterated the group’s 2050 net-zero target.
It is worth noting that BP has increased its investments in TGEs tenfold – from 3% to 30% – since 2019.
What is behind BP’s policy change?
BP’s record-setting profits for 2022 on the back of soaring oil and gas prices are the first thing that springs to mind, though BP was quick to use the Russian invasion of Ukraine as justification to “focus on energy security and affordability as well as accelerated the drive towards a lower carbon energy system”.
But “it’s clear there is big tinkering afoot”, said Susannah Streeter, head of money and markets and Hargreaves Lansdown (LON:HRGV)
“BP’s US boss Dave Lawler said that the overall strategy has not changed, but the company has clearly shifted down a gear, in terms of its medium-term green ambitions, given the target to reduce emissions by 2030 has been cut,” said Streeter.
The events of 2022 show just how immensely profitable oil and gas can be, and BP has to face the fact that US competitors such as Chevron (NYSE:CVX) and ExxonMobile have been far less vocal in their support of transitional energies.
BP is unlikely to sacrifice competitiveness and shareholder confidence at the altar of green energy ambitions, at least in the medium term.
Yet investor confidence is a two-sided risk, observed Streeter: “Despite Dave Lawler’s commitment to the overall green vision – the short-term shift is unlikely to sit well with responsible investors and may still pose a risk to BP's longer-term valuation if mainstream investors can't be convinced of its ESG credentials.”
BP has activist investors to consider in the form of the Climate Action 100+, a large group of institutional investors that has criticised BP’s transitional rethink.
Half of BP's 10 largest institutional investors are members of CA100+, according to Refinitiv Eikon data.
Shareholders also voted in support of BP’s initial 40% 2030 target.
Juggling these investor expectations with a pragmatic energy policy will be a major challenge for the energy giant in the years ahead.