BP boss: ‘We went too far too fast’ as firm slashes low-carbon investment by $5bn

BP boss Murray Auchincloss admitted the firm went “too far, too fast” in its efforts to cut its oil and gas business and shift instead to renewable energy, as he unveiled plans to slash investment in its low carbon efforts by $5 billion (£4bn).

Unveiling a long-awaited “reset” of the business, he further admitted “our optimism for a fast transition was misplaced”.

Auchincloss ran the finances of the energy giant’s upstream oil and gas business when then-chief executive Bernard Looney unveiled ambitious plans to cut production of hydrocarbons by 40% and ramp up spending on wind farms, solar, hydrogen, and other areas of clean energy in 2020.

© Erikka Askeland/DCT Media

The firm has been under pressure to change tack as both its profits and share price have lagged behind competitors, including Shell.

On one side activist fund Elliott Investment Management led the vanguard of shareholder demand for BP to cut costs on expensive low-carbon investment and focus on more profitable oil and gas business instead. But there are also many shareholders, including Scottish Widows, Hargreaves Lansdown and Royal London Asset Management arm, who want to see “progress in aligning capital expenditure with credible low-carbon scenarios”.

BP announced $1.5bn hike in hydrocarbon spending

Auchincloss said the firm planned to up investment in oil and gas from about $8.5bn a year to $10bn.

Hitting back at concerns BP has not been moving fast enough he said: “Since I took over the CEO role at the start of 2024 we have taken deliberate action to significantly refocus the portfolio. A scale and pace of action over the past year is greater than anything I have seen over the past 20 years. This includes in low carbon.”

The company also plans to raise up to $20bn by selling assets. Its 125-year old Castrol lubricants business will be subject to a “strategic review” ahead of a potential sale, while it will seek a joint venture partner for its Lightsource solar business, similar to the “capital-light” venture it formed with Japanese firm Jera for its offshore wind investments.

Speaking on the rationale behind the company’s shrinking low carbon business, executive vice president for regions, cities and solutions William Lin said solar and offshore wind sectors have been affected by inflation, while hydrogen investments had suffered from a combination of “slower policy, slower technology developments, higher costs combined with reduced customer willingness pay”.

He said BP’s capex on low carbon would be around $2bn over the next two years, which is $10bn less than previous plans.

“Two years ago we expected to spend $30bn through the decade, now we expect to spend $4bn to 2030.

“Capital will be redeployed to projects that are value accretive and meet our investment criteria.”

He highlighted three main projects on Teesside, including the H2 Teesside blue hydrogen project as one of four sanctioned hydrogen projects, that will remain a focus for its low carbon investment.

In addition to this, the £10bn Northern Endurance Partnership also represented an “economically viable” investment in carbon, capture and storage (CCS) alongside the associated CCS gas plant, Net Zero Teesside.

He said: “Both projects are structured as incorporated joint ventures and will benefit from regulatory frameworks that will provide financial support.”

Iraq deal seen as ‘fantastic agreement’

Taking questions, he added the firm’s new 25-year deal with the government of Iraq to develop oil fields in Kirkuk represented a “fantastic agreement” due to improved terms.

Auchincloss added: “In ten years time we will look back on this as one of the most important transactions BP has done in 20 years.”

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Gordon Birrell, EVP, production and operations added: “We have learned a lot over the last four years, and with hindsight, we haven’t invested enough in our oil and gas businesses”.

BP has also adopted President Trump’s preferred name “Gulf of America” – erasing Mexico from the area where BP operates a number of oil and gas production assets. Burrell referred to “Gulf of America” five times in his presentation.

One of his slides highlighted BP’s plans to invest further in its £4.5bn Clair Ridge production area West of Shetland.

Recently, the firm unveiled that a well on the field had achieved an “unusual level of success” by producing 12,500 barrels of oil per day.

Early reactions from analysts who inform investors were positive, which suggests pressure on the board might have eased.

Irene Himona at Bernstein highlighted the changes as a “radical, simplified and sensible strategic reset”.

She wrote: “In our view, BP has listened to the market, and presented a strategic framework which is suited to an integrated oil and gas major, suited to the realities of the economic environment, simpler than before, comparable with its major peers (from being a complex outlier before).”

Some key figures:

• Reduce net debt to between $14-18bn by end 2027.
• Provide “resilient” dividends for shareholders – expected to increase by at least 4% per ordinary share a year. It expects share buyback for Q1 2025 will be $750m to $1bn.
• BP has said it will reduce staff by 5%. This includes 4,700 BP staff and 3,000 contractors.