BP, Shell and other oil companies should ditch the green crusade and leave it to the specialists
Auchincloss’s company may not even be capable of leading the charge towards renewable energy
The unceremonious departure of Bernard Looney as boss of BP was the perfect opportunity for the oil giant to swiftly change course. He was the virtue-signalling chief in blue denim with a lively personal life.
He catapulted one of the world’s oldest fossil fuel drillers headlong into a green future of solar farms and wind turbines, embraced he/his pronouns on he/his personal Instagram feed, and was a vocal advocate of transgender awareness, only to be fired for misleading the BP board over a string of romantic affairs he had with colleagues. The scandal was another blow to the reputation of an organisation where three out of the past four chief executives have had to resign prematurely but it created an opening to mend BP’S toxic culture, as well as rethink its pursuit of net zero nirvana in the face of growing scepticism from the stock market.
The appointment of finance chief Murray Auchincloss appears to end any such hopes. BP was screaming out for an outsider, yet the Canadian was not only the continuity candidate, it turns out he too is in a relationship with a colleague albeit with the full disclosures made this time. He was also quick to pledge his commitment to Looney’s big green ambitions.
“Our strategy – from international oil company to integrated energy company – does not change. I’m convinced about the significant value we can create,” he said upon taking charge earlier this month. Still, all hope is not lost. The arrival of an activist investor is unlikely to put a stop to the extra-curricular activities that seem to be rife at BP. Nevertheless, it could test Auchincloss’s resolve when it comes to sticking with a strategy of continuing to drill for oil and gas while funnelling profits into unproven renewables projects.
Bluebell Capital Partners calls it “irrational” and rightly so. BP is attempting to walk a tightrope, one in which it attempts to retain the faith of investors with the spoils of oil and gas exploration while simultaneously placating the environmental brigade with a reduction in those same drilling activities and embrace of renewables that typically carry lower returns.
This is where the debate about the energy industry remains focused: can BP, Shell and their rivals juggle widely conflicting interests as the world attempts to wean itself of fossil fuels? Increasingly it has the look of a circle that cannot be squared with one side inevitably left feeling short-changed to satisfy the demands of the other.
The result of BP’S desperate efforts to please everyone is that it has ended up stuck in a sort of no-man’s land – a sort of half-hearted embrace of both approaches that, ironically, has left both camps increasingly exasperated.
Bluebell’s complaint that the adoption of renewable technology has “depressed BP’S share price” appears to be supported by the facts. Total returns have lagged Shell’s and foreign rivals’ over the past four years. This, despite Looney rowing back on his green crusade in the face of mounting pressure. The simple reality is that for BP to truly become a clean energy trailblazer, it must direct a far greater proportion of its profits away from the lavish dividends and buybacks that investors expect into green ventures.
Yet, if those activities are riskier and less profitable than plundering the earth’s natural resources the dwindling payout pool will only continue to shrink, stoking shareholder unrest further. It requires a total reinvention.
In some ways however, this is the wrong discussion. The real question should not be whether BP is willing to embrace renewables more wholeheartedly but whether it is even capable of leading the charge.
Looney’s argument was that the heritage and engineering nous that comes from creating the current energy system equipped it with the skills and knowledge to be at the forefront of building the new one.
What’s more, he claimed that BP could do this while continuing to post heroic, oil-like returns on capital of between 8 and 10pc – an assertion disputed by experts on both sides of the debate. But what evidence exists to suggest that this is so? Are there similarities between deep-water oil and gas drilling and building a solar farm? Are the same highly-skilled geologists that help map out the sea bed going to be the same people that help BP become a major player in sustainable aviation fuel or hit a target of rolling out 100,000 electric car charging points globally by 2030? Can an engineer that has spent a lifetime working on a North Sea oil rig easily get a job installing wind turbines? Are there any similarities between building and operating a refinery or a gas pipeline and experimenting with unproven technology such as green and blue hydrogen?
As important are doubts about whether BP is even set up financially to play a part in the energy transition. Renewable energy projects require high up-front expenditure and funky debt financing to keep things efficient. BP is yet to spend anything close to the sort of meaningful sums needed and is expert only in wielding a balance sheet replete with cash. The impression is that of accountants drip-feeding the bare minimum against their will.
A break-up is one option to allow better focus. Another rational move would be to run the company down and hand the proceeds back to investors as the world eventually moves on from fossil fuels.
Neither is likely but unless Auchincloss can get BP and its cosy culture off the fence, shareholder unrest is likely to intensify and the risk of a hostile takeover will rise.
‘Can BP and Shell juggle widely conflicting interests as the world tries to wean itself off fossil fuels?