BP to slash green investment and ramp up gas and oil

BP is expected to announce cuts to its investments in renewable energy, shifting its focus to increasing oil and gas production. This strategic adjustment comes after some investors expressed dissatisfaction with BP's profits and share price lagging behind its competitors.

Reportedly, Shell and Equinor have already scaled back their green energy investment plans. Simultaneously, former US President Trump's "drill, baby, drill" rhetoric has encouraged investment in fossil fuels and fueled a trend of divesting from low-carbon projects.

Some shareholders and environmental groups have expressed concerns about BP potentially increasing fossil fuel production. Five years ago, BP set one of the most ambitious targets among major oil companies, aiming to cut oil and gas production by 40% by 2030 while significantly increasing investment in renewable energy. However, in 2023, the company had already reduced this reduction target to 25%.

Currently, BP is expected to completely abandon its previous target and confirm that it will cut renewable energy investments by more than half, a move CEO Murray Auchincloss has called a "fundamental reset." In 2024, BP's net profit fell from $13.8 billion the previous year to $8.9 billion (£7.2 billion).

Auchincloss is facing pressure from some shareholders, including activist investor Elliot Management, who are demanding higher profits. Elliot Management holds nearly £4 billion in the £70 billion company and aims to push for more investment in oil and gas. Since then-CEO Bernard Looney first unveiled his strategy in 2020, shareholders have received a total return of 36% over the past five years, including dividends. In comparison, shareholders of rivals Shell and Exxon have received returns of 82% and 160%, respectively.

BP's underperformance has sparked speculation that the company could become a takeover target or consider moving its primary stock market listing to the United States, where oil and gas companies are valued more highly. Not all shareholders want the company to change direction so drastically. Last week, a group of 48 investors called on the company to allow them to vote on any plans that might deviate from its previous commitments to renewable energy.

A spokesperson for Royal London Asset Management said: "As a long-term shareholder, we recognize BP's past efforts in the energy transition, but remain concerned about the company continuing to invest in fossil fuel expansion." Greenpeace UK warned that BP could face "resistance and challenges from green campaigners and its own shareholders" if it doubles down on fossil fuels.

Senior climate advisor Charlie Kronick said: "Government policy also needs to prioritize renewable energy, and as extreme weather puts pressure on insurance models, policymakers will look to use fossil fuel profits to fund extreme weather recovery. BP may need to seriously hit the brakes on this U-turn." AJ Bell analyst Russ Mould said this is one of the most important moments for BP in the past four or five years.

"So far, other energy companies have made their intentions clearer than BP," he said. "They need to prove to people that they are looking to take action, rather than letting things develop naturally, after experiencing difficult operational and share price performance compared to their peers."

BP has already formed a joint venture with Japanese company Jera for its offshore wind business and is looking for partners to do the same for its solar business. Refocusing on oil and gas could also lead to the sale of other businesses in order to "clear non-core assets from the books," as insiders put it.

It has been more than 20 years since former CEO Lord John Browne said BP could stand for "Beyond Petroleum," when he launched the company's first tentative move away from oil and gas. Today's strategic shift could be called "Back to Petroleum" – delighting some shareholders while dismaying others. BP and Elliot Management both declined to comment.