BP has decided to shift its strategy back toward oil and gas investments, abandoning its earlier target to cut output by 2030. This move comes as CEO Murray Auchincloss seeks to restore investor confidence following a significant drop in the company’s share price. Three sources with knowledge of the situation have confirmed that the firm is recalibrating its energy transition strategy to prioritize short-term financial returns.
Originally introduced in 2020, BP's energy transition strategy was hailed as one of the most ambitious in the sector. The plan included a pledge to reduce oil and gas output by 40% while simultaneously ramping up renewable energy production. However, by February of the previous year, BP had already lowered its target to a 25% reduction, aiming to maintain a production level of 2 million barrels per day by the end of the decade. This retreat was largely driven by investor demands for immediate financial performance over long-term sustainability goals.
Under Auchincloss, who took the reins in January, BP is pivoting toward several new investment opportunities in the Middle East and the Gulf of Mexico. Sources indicate that the firm is actively pursuing projects that will enhance its oil and gas output, moving away from its previous focus on renewable energy investments. The CEO, who previously served as BP’s finance head, aims to differentiate himself from former CEO Bernard Looney, who was dismissed for failing to disclose relationships with colleagues. Auchincloss’s strategy emphasizes maximizing returns and concentrating on the most lucrative sectors, particularly oil and gas.
Despite the shift in focus, BP maintains its commitment to achieving net-zero emissions by 2050. A spokesperson for the company stated, “As Murray said at the start of the year... the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company.” This assertion underscores the company's intention to balance immediate profitability with long-term sustainability goals.
Auchincloss is scheduled to unveil his updated strategy, which includes the removal of the 2030 production target, during an investor day in February. However, it appears that BP has already de facto abandoned this target. It remains uncertain whether the company will offer new production guidance.
The pivot in strategy comes at a time when rival companies, such as Shell, are also recalibrating their energy transition efforts. Shell, under the leadership of CEO Wael Sawan, has divested from power and renewable businesses and halted various projects, including offshore wind, biofuels, and hydrogen initiatives. This trend is indicative of a broader industry response to the changing energy landscape, particularly in light of the heightened focus on European energy security following the price shocks triggered by Russia’s invasion of Ukraine in early 2022.
Despite BP's past investments in low-carbon businesses, the company has faced challenges. Supply chain disruptions and surging costs, exacerbated by rising interest rates, have pressured the profitability of many renewable ventures. Insiders note that while competitors have actively invested in oil and gas exploration, BP had somewhat neglected this area in recent years.
Renewed Interest in the Middle East
BP is currently engaged in discussions to invest in three new projects in Iraq, with one initiative focused on the Majnoon oilfield. The company holds a 50% stake in a joint venture managing the Rumaila oilfield, which has been a cornerstone of its operations for a century. In August, BP signed a significant agreement with the Iraqi government to develop and explore the Kirkuk oilfield in the northern region. This agreement includes plans for power plant construction and solar capacity development, featuring a more favorable profit-sharing model compared to previous contracts.
In addition to Iraq, BP is considering investments to redevelop oil fields in Kuwait. In the Gulf of Mexico, the company plans to proceed with the development of the Kaskida reservoir and is also weighing the greenlighting of the Tiber field. Furthermore, BP is looking to acquire assets in the Permian shale basin to bolster its existing U.S. onshore operations, which have increased their reserves by over 2 billion barrels since a significant acquisition in 2019.
To address financial concerns, Auchincloss announced a $2 billion cost-saving initiative set to be completed by the end of 2026. As part of this plan, the company has recently paused investments in new offshore wind and biofuel projects, trimming its low-carbon hydrogen initiatives from 30 to just 10. Nonetheless, BP has maintained its stake in solar energy, acquiring the remaining 50% in its solar joint venture, Lightsource BP, along with a 50% share in its Brazilian biofuel business, Bunge.
The ongoing transformation at BP highlights a significant shift in focus back to traditional oil and gas investments as the company strives to regain investor confidence and navigate a challenging energy landscape.
(Source:www.reuters.com)
Originally introduced in 2020, BP's energy transition strategy was hailed as one of the most ambitious in the sector. The plan included a pledge to reduce oil and gas output by 40% while simultaneously ramping up renewable energy production. However, by February of the previous year, BP had already lowered its target to a 25% reduction, aiming to maintain a production level of 2 million barrels per day by the end of the decade. This retreat was largely driven by investor demands for immediate financial performance over long-term sustainability goals.
Under Auchincloss, who took the reins in January, BP is pivoting toward several new investment opportunities in the Middle East and the Gulf of Mexico. Sources indicate that the firm is actively pursuing projects that will enhance its oil and gas output, moving away from its previous focus on renewable energy investments. The CEO, who previously served as BP’s finance head, aims to differentiate himself from former CEO Bernard Looney, who was dismissed for failing to disclose relationships with colleagues. Auchincloss’s strategy emphasizes maximizing returns and concentrating on the most lucrative sectors, particularly oil and gas.
Despite the shift in focus, BP maintains its commitment to achieving net-zero emissions by 2050. A spokesperson for the company stated, “As Murray said at the start of the year... the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company.” This assertion underscores the company's intention to balance immediate profitability with long-term sustainability goals.
Auchincloss is scheduled to unveil his updated strategy, which includes the removal of the 2030 production target, during an investor day in February. However, it appears that BP has already de facto abandoned this target. It remains uncertain whether the company will offer new production guidance.
The pivot in strategy comes at a time when rival companies, such as Shell, are also recalibrating their energy transition efforts. Shell, under the leadership of CEO Wael Sawan, has divested from power and renewable businesses and halted various projects, including offshore wind, biofuels, and hydrogen initiatives. This trend is indicative of a broader industry response to the changing energy landscape, particularly in light of the heightened focus on European energy security following the price shocks triggered by Russia’s invasion of Ukraine in early 2022.
Despite BP's past investments in low-carbon businesses, the company has faced challenges. Supply chain disruptions and surging costs, exacerbated by rising interest rates, have pressured the profitability of many renewable ventures. Insiders note that while competitors have actively invested in oil and gas exploration, BP had somewhat neglected this area in recent years.
Renewed Interest in the Middle East
BP is currently engaged in discussions to invest in three new projects in Iraq, with one initiative focused on the Majnoon oilfield. The company holds a 50% stake in a joint venture managing the Rumaila oilfield, which has been a cornerstone of its operations for a century. In August, BP signed a significant agreement with the Iraqi government to develop and explore the Kirkuk oilfield in the northern region. This agreement includes plans for power plant construction and solar capacity development, featuring a more favorable profit-sharing model compared to previous contracts.
In addition to Iraq, BP is considering investments to redevelop oil fields in Kuwait. In the Gulf of Mexico, the company plans to proceed with the development of the Kaskida reservoir and is also weighing the greenlighting of the Tiber field. Furthermore, BP is looking to acquire assets in the Permian shale basin to bolster its existing U.S. onshore operations, which have increased their reserves by over 2 billion barrels since a significant acquisition in 2019.
To address financial concerns, Auchincloss announced a $2 billion cost-saving initiative set to be completed by the end of 2026. As part of this plan, the company has recently paused investments in new offshore wind and biofuel projects, trimming its low-carbon hydrogen initiatives from 30 to just 10. Nonetheless, BP has maintained its stake in solar energy, acquiring the remaining 50% in its solar joint venture, Lightsource BP, along with a 50% share in its Brazilian biofuel business, Bunge.
The ongoing transformation at BP highlights a significant shift in focus back to traditional oil and gas investments as the company strives to regain investor confidence and navigate a challenging energy landscape.
(Source:www.reuters.com)
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