BP Strategy Reset: Prioritizing Oil and Gas Over Green Energy

Reversing its earlier ambitions, BP a British multinational oil and gas company, one of the world’s oil and gas “supermajors” and also one of the world’s largest companies measured by revenues and profits, has announced a reset of its business strategy, prioritizing oil and gas over its once-celebrated push into green energy. On Wednesday, the company signaled it would ramp up annual spending on fossil fuels by 20%, bringing it to $10 billion, while slashing its renewables budget by a steep 70%.

This pivot, described by Chief Executive Murray Auchincloss as a “fundamental reset,” marks the end of a five-year experiment to redefine BP as a leader in the global energy transition, a vision that ultimately faltered under investor skepticism and disappointing returns.

Auchincloss, who assumed the CEO role permanently in January 2024, admitted the company’s earlier optimism about a swift shift to sustainable energy was misguided. “Our optimism for a fast transition was misplaced, and we went too far too fast,” he said, reflecting on the decision to outpace rivals in cutting fossil fuel production and targeting 50 gigawatts of renewable power. That strategy, launched five years ago, positioned BP as a trailblazer in the fight against climate change but failed to deliver the financial performance shareholders demanded.

Investor Pressure Drives Change

The catalyst for this dramatic shift stems from mounting pressure from influential stakeholders, notably activist investor Elliott Management. Earlier this month, it emerged that Elliott had amassed a nearly 5% stake in BP valued at £72 billion intensifying calls for a rethink of the company’s direction.

Auchincloss’s new plan abandons lofty targets to reduce oil and gas output, opting instead to bolster upstream operations with a “pretty high growth rate.” BP now aims to launch up to 27 new projects within the next five years, tapping into an estimated 16 billion barrels of reserves to rebuild production capacity after years of cuts.

Despite the renewed focus on hydrocarbons, Auchincloss insists BP remains committed to diversification. “Oil and gas will be needed for decades to come,” he said while emphasizing that production levels in 2030 will still fall slightly below 2019 figures. “You will see no better-integrated energy company in the world than BP,” he added, positioning the firm as a balanced player in a shifting energy landscape.

Financial Overhaul and Asset Sales

The strategic rethink extends beyond operations to BP’s financial framework. Auchincloss unveiled plans to raise at least $20 billion by 2027 through asset divestitures, with potential sales including its lubricants division, Castrol, and a stake in its solar venture, Lightsource. Other options on the table include offloading infrastructure, upstream and downstream assets, and parts of its extensive petrol station network. “There are lots of options,” Auchincloss noted, underscoring the flexibility of this approach.

To bolster its balance sheet, BP aims to slash net debt by at least 20% and trim costs by $4 billion over the next two years. However, this comes at the expense of shareholder returns, which Auchincloss signaled will be lower than in recent years, a move that may test investor patience further.

Following the announcement, BP’s shares dipped 2.3%, reflecting uncertainty about whether the changes go far enough. “We put a ton of information out there,” Auchincloss said. “[Investors] will need to interpret that and understand it. And then I expect the share price to start moving up over the coming weeks and months.”

Mixed Reactions and Long-Term Outlook

Analysts have offered cautious takes on BP’s recalibration. Biraj Borkhataria of RBC Capital Markets acknowledged that the company appears to be making “the right calls for the long term,” but warned it “may not please investors today.”

The retreat from renewables and the pivot back to fossil fuels signal a pragmatic recognition of market realities, yet they also highlight the challenges of balancing profitability with environmental commitments in an industry under intense scrutiny.

BP’s journey over the past half-decade reflects broader tensions in the energy sector. Once hailed as a pioneer for its aggressive green agenda, the company now finds itself recalibrating to align with shareholder priorities and the enduring demand for oil and gas.

While Auchincloss champions BP as a uniquely integrated energy firm, the road ahead will test whether this hybrid model can deliver the returns investors crave, and whether the market will reward this return to its fossil fuel roots.

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