BP: New boss will need to figure out relationship with green energy
BP boss Bernard Looney resigned last week after misleading his board. Energy editor Nicholas Earl argues whoever replaces him will need to stick or twist with Looney’s renewables strategy
Bernard Looney’s dramatic departure from BP has triggered colourful coverage of his personal life and hefty pay packet, but the increasingly pressing issue for the investors in the Square Mile is the company’s stale share price.
The publicly listed group appears increasingly caught between two stalls, unable to lure green-focused shareholders while failing to convince incumbent investors of any potential value in the wider net zero agenda.
The FTSE 100 firm is priced at 523.2p per share heading into trading this week having endured a rocky journey on the London Stock Exchange, as the commodities boom which fuelled record profits over 2022 shows signs of easing.
This is well below domestic rival Shell’s 2,586p per share valuation on the same index, while being far off the pace of Stateside players Chevron and Exxon – currently priced at $166.50 per share and $116.70 per share respectively.
Shares in BP have risen by around seven per cent since Looney became chief executive in February 2020, compared with a 25 per cent climb for Shell, a 51 per cent spike for Chevron, and a 87 per cent gain for Exxon, according to calculations from the Wall Street Journal,
There are multiple reasons for BP’s lower share price, with the company bottom of the class during last year’s profit boom despite its record £23bn earnings, behind also Total and Equinor.
One is it reflects that green investors remain wary of backing fossil fuel producers, while oil and gas shareholders are still nervous over a radical shift to renewables – with BP seemingly unable to impress either stakeholder group.
This dilemma is a real challenge for the energy sector, as net zero is dependent on the resources of fossil fuel giants and their ingenuity in transitioning to low carbon power sources such as wind, solar, hydrogen and carbon capture.
If shareholders fail to harness returns for such moves, it could delay the UK’s clean energy transition – endangering domestic energy security and likely dashing any hopes of meeting internationally agreed climate goals.
BP exposed as greenest oil and gas major
BP, in terms of policy at least, is not especially distinctive in its approach to net zero or renewable investing.
Its commitment to net zero over the next three decades is the de-facto default stance across the industry including the US titans.
Meanwhile, its short-term watering down of pledges to reduce emissions in oil and gas production from 40 per cent to 25 per cent are comparable to Shell’s recent decision to shelve plans for oil and gas production cuts.
The group’s dividend scheme is also reflectively generous following last year’s bumper windfall.
However, it is also a matter of rhetoric– with both Exxon and Chevron bullish in positioning themselves chiefly as oil and gas companies first, using the war in Ukraine as a justification for boosting fossil fuel production.
Investors have been reassured that oil and gas firms might soon come with an ESG tick
Exxon has publicly raised doubts over whether it can achieve this goal in correspondence with proxy advisor Glass Lewis earlier this year. It is also unsure whether the Paris Climate agreement goals of containing global temperatures rises to below two degrees from pre-industrial levels are realistic.
Closer to home, under new boss Wael Sawan, Shell has defended the need for oil and gas for decades to come while also slashing its short-term oil and gas reduction pledges – with the chief executive describing radical reductions as “dangerous and irresponsible.”
This has seemingly reassured investors that these oil and gas producers are still committed to their primary operations.
By contrast, in one of his final interviews at the helm, Looney confirmed there would be no further rolling back of climate pledges and that BP would “hold its nerve” over renewables.
This stance is admirable, and is in line with BP’s recent marketing around fossil fuels and low carbon energy, where it has tried to present the solution as “and, not or.”
Yet, it signals to incumbent investors wooed by the prospect of steady returns from fossil fuel production.
Combined with the fact it is now the only major oil company aiming to reduce output by the end of the decade, there is concern over whether BP can offer the same pathway to profits as its competitors.
Clean energy investors also unconvinced
BP’s stance has failed to lure green investors, despite its potential leading role in the clean energy ramp up, with a bevy of low carbon technology producers offering solutions in batteries and renewable products instead.
This includes some companies with more access to US markets which are being bolstered by the vast subsidies in the US Inflation Reduction Act.
BP has pledged to spend £18bn over the current decade on domestic energy projects, with an emphasis on zero and low carbon energy developments.
Yet, the company’s climate plans are still the subject of consistent challenges from activist shareholders such as Follow This, while CityAM has highlighted its lack of short-term support for green energy projects compared to fossil fuel projects.
With the various runners and riders in the frame to take over from Looney – getting the balance right between future facing investments in clean energy projects and its role in oil and gas production is key to its share price and long-term prospects.
Otherwise, BP will not be able to play the role we need it to in ensuring energy security and net zero.