Mark Kleinman: A reset BP might not have drilled deep enough for activists
Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking in his weekly CityAM column. Today, he tackles activist investors drilling into BP, Ratcliffe’s cost-cutting and a big ticket auction
A reset BP might not have drilled deep enough for activists
Bernard’s Parable or Belated Pivot? These might be the most concise definitions of the Looney and Auchincloss eras at BP – replaced yesterday by an enforced urgency from the latest occupant of the company’s activist-besieged hotseat.
The oil major’s capital markets day statement sets a new course for one of Britain’s most important companies, coming weeks after it emerged that Elliott had begun building a multibillion-pound stake.
Auchincloss has firmly dispensed with the notion, spearheaded by disgraced predecessor Bernard Looney, that BP should pivot towards the energy transition and scale back investment in new oil and gas exploration.
Its statement was emphatic: a 20 per cent increase in spending on oil and gas, an abandonment of previous reduction targets as well as a pledge to develop 50 gigawatts of renewable power.
Auchincloss’s pipeline (excuse the pun) of 27 development projects, which he says equates to 16bn barrels of oil, underlines the decisiveness of BP’s shift under him.
The decision to sell Castrol, its lubricants business, is sensible, having been considered at the time of the Deepwater Horizon oil spill in 2010. It will fetch a lower sum now than it would have done then, but would nevertheless provide a useful fortification of BP’s balance sheet.
Nevertheless, investors were seemingly underwhelmed by Auchincloss’s pivot, with BP’s shares trading down about one per cent in the hours after the announcement.
That may reflect dissatisfaction at how far he had gone, but it also might underline a suspicion that the strategy would make BP more resilient to a potential predator.
Speculation in the weeks leading up to the reset included the idea that Auchincloss might put a for sale sign above the company’s downstream operations. That would have left BP wide open to a bid from Shell or a US major, so logic dictated that its board veered away from that.
“We will grow upstream investment and production to allow us to produce high margin energy for years to come,” Auchincloss said. “And we will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset bp, with an unwavering focus on growing long-term shareholder value.”
Enough to satisfy Elliott? I doubt it. But it represents a sensible start.
It’s more like Cold Trafford in the Ratcliffe era
£14m is not enough to buy even the right foot of a decent Premier League striker, but a sizeable chunk of change nonetheless. That was the cost to Manchester United of dismissing sporting director Dan Ashworth and renewing former manager Erik Ten Hag’s contract before dispensing with him just four months later.
No wonder the club faces financial peril which could scarcely have been imaginable when the Glazer family put it up for sale in November 2022 – used as justification for hundreds more job cuts this week.
Cost-cutting measures imposed by Sir Jim Ratcliffe since his Ineos Sports vehicle took a minority stake in the Red Devils last year have been brutal, but under the Premier League’s Profit and Sustainability Rules, the penalties for non-compliance are stark.
United warned fans in a letter last month that there was genuine danger that it would breach the PSR framework, one of its justifications for proposals for swingeing ticket price hikes which have threatened to drive a further wedge between the underperforming club and its fans.
Last week’s financial results showed a 42 per cent slump in broadcast revenue, which contributed to an overall quarterly loss of nearly £28m.
It’s safe to assume that a Premier League finish of 15th this season (United’s current position in the table) would exacerbate that financial headache in the following campaign. Moreover, the mediocrity which pervades the men’s first-team squad will require substantial sums to eradicate, and is likely to take several years – at least – to achieve.
Ratcliffe has already invested time in exploring the feasibility of either rebuilding a crumbling Old Trafford or constructing an entirely new stadium. Given the constraints facing his broader business empire, financing either looks trickier by the month.
Osttra bid battle may spell long-term gain for London market
It’s not at the racier end of the financial markets infrastructure spectrum, but a multibillion dollar auction of Osttra, the post-trade specialist, offers a fresh clue about the rush to devour such assets.
Put up for sale by current owners S&P and CME Group, London-based Osttra was formed from the amalgamation of IHS Markit’s MarkitServ business and the latter’s Traiana, TriOptima and Reset operations. (S&P then bought IHS Markit in 2022.)
Bankers believe Osttra is now worth between $3bn and $4bn. I’ve already reported that a consortium comprising Advent International, CVC Capital Partners and Motive Partners has submitted an offer, but I understand that Brookfield and the US-based private equity firm GTCR are among the other suitors.
The auction raises the likely outcome of Osttra being sold by US strategics to North American financial investors – hardly an unusual scenario, but worth noting in the context of a globally significant UK-headquartered company.
Assuming the buyer has a five-to-seven year ownership horizon, its exit strategy could be through a sale to another financial infrastructure group – antitrust barriers-permitting – or via a public listing. It would be nice to think that by then, the London Stock Exchange might have a sufficiently compelling pitch to tempt an enlarged Osttra to float in the same country as its headquarters.