BP chief ‘doesn’t care about rivals’ despite falling behind US players

The likes of BP should focus on what they do best – pumping fuel out of the ground and returning excess profits to shareholders

THE chief executive of BP has confirmed plans to refocus the business on fossil fuels but denied the move was motivated by the comparatively better performance of US oil giants.

BP’S shares climbed almost 7pc after it reported record annual profits of $27.7bn (£23bn) and Bernard Looney, its chief executive, relaxed plans to cut back on oil and gas production.

The company had planned to reduced oil and gas production by 40pc this decade as part of a push into greener energy announced by Mr Looney when he took charge in 2020. However, he said BP would now only cut production by 25pc by 2030. The change means BP will still be producing 2m barrels of oil and gas equivalent per day by 2030, compared with about 2.2m per day currently.

BP will increase investment in both fossil fuels and renewables, with plans to invest up to $18bn per year split between the two until 2030.

Analysts said the shift would make BP more attractive to investors, helping to close the gap in valuation between US and European fossil fuel businesses.

BP and other European oil companies are valued lower than US rivals, partly because of a perception that US companies are still focused on lucrative oil and gas despite pressure to shift to greener energy. Exxon is now valued at $464bn and Chevron at $329bn, compared with BP at £92.5bn and Shell at £169bn. Over the past year, BP’S shares have climbed 25pc, while Exxon’s have risen 37pc.

Mr Looney said the company’s pivot back towards oil was not driven by the gap with US rivals and said he “tries not to spend too much time thinking about what other people are doing”.

He added: “Governments and societies all around the world are asking companies like us to invest more into energy security today, as well as investing more into the energy transition.

“That’s our strategy and has been our strategy for three years – investing in today’s energy system, which is a hydrocarbon system, and investing in accelerating the energy transition.”

Biraj Borkhataria, head of European energy research at RBC, said: “I think this is a meaningful step for a European energy company towards closing the narrative gap.”

Barclays said BP’S pivot was “the best of both worlds”. Analysts added: “We have in the past described BP as the most misunderstood companies [sic] in our coverage, and this strategy goes a long way to address the concerns.”

BP announced a 10pc increase in its dividend to 6.61 cents per share and a $2.75bn share buyback over the next three months. Its share price climb added £6bn to BP’S market value. BP’S $27.7bn annual profits were boosted by soaring oil and gas prices following Russia’s invasion of Ukraine.

The record haul has triggered fresh calls for tougher windfall taxes on oil and gas companies. It comes after FTSE 100 rival Shell last week reported record annual profits of $39.9bn.

Rachel Reeves, shadow chancellor, accused the Government of “allowing energy companies to make profits that are the windfalls of war, while ordinary families and business pay the price”.

Chancellor Jeremy Hunt said existing windfall taxes were “balanced and fair”. The Government has increased the tax rate on oil giants from 40pc to 75pc.

One would imagine that BP has had enough of Bernard Looney’s clumsy metaphors. But if it was a “cash machine” before Russia’s invasion of Ukraine, to borrow Looney’s unfortunate words, then how might the Irishman characterise his employer on current form – a money-printing service to rival the Royal Mint?

It probably doesn’t matter. Critics have been handed more ammunition than ever to lay into the company without Looney putting his foot in it again. Surging oil and gas prices on the back of Vladimir Putin’s war have not so much boosted profits at BP as sent them through the roof, provoking perhaps the fiercest anti-oil backlash yet with detractors queueing up to outdo each other in the outrage stakes.

BP is “mining gold out of vast suffering”, Kate Blagojevic, Greenpeace UK’S head of climate justice, said after the FTSE 100 company announced record results for last year. Profits of $28bn (£23bn) were more than double what they were in 2021 – proof that BP is “laughing all the way to the bank”, the Trades Union Congress said. Ed Miliband, the shadow climate secretary, declared that “the windfalls of war” were “coming out of the pockets of the British people”.

Meanwhile, BP continues to walk a tightrope between keeping shareholders onside with lavish payouts and reining in oil exploration to satisfy environmentalists, at the same time as pushing further and faster into green projects.

This is where the debate about “big oil” remains focused: can BP, Shell and rivals juggle widely conflicting interests as the world charges towards decarbonisation? Increasingly, the answer to that question appears to be “no” – in order to keep one side happy, it almost inevitably means that the other is left feeling short-changed.

For BP to truly ramp up investment in clean energy, it requires that investors accept smaller payouts from a company that has long prided itself as one of the most reliable and generous dividendpayers in corporate Britain.

Perhaps then it is time to ask a more fundamental question altogether, which is whether the oil and gas giants of old are actually capable of being trailblazers for renewable technology at all. Looney’s argument is that BP’S heritage, engineering nous, and position as a gas, power and carbon trader, will enable it to do this while continuing to post oil-like returns on capital of between 8pc and 10pc. But it’s a thesis that remains largely aspirational and untested, not least because BP has yet to direct meaningful levels of capital towards clean energy initiatives, a situation that seems unlikely to change any time soon. As pressure builds on the industry to cut emissions and switch to cleaner energy, fossil fuel exploration is more lucrative than it has been for a long time, which means even greater rewards for investors – in this instance, a 10pc increase in the dividend and an extra $2.75bn of buybacks, taking total shareholder returns for 2022 to $14.4bn.

The upshot is that BP has already begun rowing back on its climate commitments. Whereas before the aim was to cut emissions by 35pc to 40pc by the end of this decade, it is now targeting a figure of around 20pc to 30pc. For a business with BP’S carbon footprint, that is a significant retreat.

Yet the issue isn’t just that BP is a reluctant champion of renewables, or that traditional shareholders lack the incentive to encourage its adoption of green energy. A bigger question is this. How realistic is it, really, to think that an outfit that has spent the last century drilling relentlessly for hydrocarbons in every corner of the planet can completely reinvent itself as a business that builds and operates wind turbines, solar farms and electric car charging points?

The reality is that BP and Shell are being asked to focus on new technologies that are as alien to them as the combustion engine was to horse breeders. Yet nearly 140 years after Carl Benz filed a patent for what is regarded as the world’s first motor car, if you had to lay a bet on who will become the pre-eminent electric vehicle producer of the 21st century, would it be: an unencumbered technology company like Tesla, with a visionary like Elon Musk leading the charge; or one of the other traditional car manufacturers such as VW – an organisation so wedded to the diesel and petrol engine that it has been forced to fork out more than €30bn (£27bn) in fines for trying to make its cars seem less pollutive than they are.

Size and longevity are not necessarily any guarantee of survival when it comes to massive technological change. If they were, Kodak would still be around. Ditto Blockbuster or Pan Am.

With Europe’s fossil fuel champions under greater political and social pressure than their American counterparts to embrace a low-carbon future, it is telling that their share prices have diverged. Total shareholder returns for BP and Shell are roughly half those of Exxon and Chevron over the last 12 months alone.

Looney has alternative options: a break-up that creates two distinct companies with different growth prospects, risk profiles, returns and more aligned investors in each; or a complete winddown in which BP continues pumping oil out of the ground and returns all its excess profits to shareholders, who can then direct the capital towards a new generation of genuine renewable energy companies that aren’t constrained by an emotional and financial attachment to the past.

A company man like Looney will be reluctant to oversee such a radical shake-up but with BP struggling to navigate such diametrically opposed interests, maybe it is time to consider a plan B and admit that it isn’t easy being green.

In fact, for a major oil business, it is impossible.

‘It isn’t easy being green. In fact, for a major oil business, it is impossible’