BP to slash green investment and ramp up gas and oil

British Petroleum (BP) is expected to announce a significant reduction in its investments in renewable energy, shifting its focus to increasing oil and gas production. This strategic adjustment comes after pressure from some investors who are dissatisfied with BP's profits and share price being far below those of its competitors. This shift reflects a broader trend within the energy sector.

Previously, Shell and Equinor have already scaled back their green energy investment plans. At the same time, former US President Trump's "drill, baby, drill" rhetoric has encouraged investment in fossil fuels, as well as reduced investment in low-carbon projects. Some shareholders and environmental groups have expressed concern about BP's potential increase in fossil fuel production, highlighting the tension between short-term profits and long-term sustainability.

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 lowered this reduction target to 25%. It is now expected that BP will abandon this target altogether and confirm a reduction of more than half of its renewable energy investments, which CEO Murray Auchincloss calls a "fundamental reset."

In 2024, BP's net profit fell from $13.8 billion in the previous year to $8.9 billion (£7.2 billion). Auchincloss is facing pressure from some shareholders, including activist investor Elliot Management, to increase profits. Elliot Management holds nearly £4 billion in the £70 billion company, aiming to drive more investment in oil and gas. Since former CEO Bernard Looney first announced his strategy in 2020, shareholders have received a total return (including dividends) of 36% over the past five years. In comparison, shareholders of competitors Shell and ExxonMobil received returns of 82% and 160% respectively, underscoring the performance gap.

BP's poor performance has fueled speculation that the company may become a takeover target, or may consider transferring its primary stock market listing location to the United States, where oil and gas companies are valued higher. However, 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 prior commitments to renewable energy. A spokesperson for Royal London Asset Management said: "As long-term shareholders, we recognize BP's past efforts in the energy transition, but remain concerned about the company's continued investment in fossil fuel expansion."

Greenpeace UK has warned that if BP doubles down on fossil fuels, it could face "opposition and challenges from green campaigners and its own shareholders." 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 seek to use fossil fuel profits to fund extreme weather recovery. BP may need to seriously hit the brakes on this U-turn." This highlights the potential for regulatory and social pushback against BP's revised strategy.

AJ Bell analyst Russ Mould said that this is one of the most important moments for BP in the past four or five years. "So far, other energy companies have been clearer in their articulation of their intentions than BP," he said. "They need to prove to people that they are looking to take action, rather than just letting things drift, after a tough operational and share price performance compared to peers." The clarity of BP's future direction will be crucial for investor confidence.

BP has already partnered its offshore wind business with Japanese company Jera and is looking for partners to handle its solar business in the same way. The renewed focus on oil and gas could also lead to the sale of other businesses in order to, as insiders describe it, "remove non-core assets from the books." These strategic moves are designed to streamline BP's operations and improve profitability.

More than 20 years ago, former CEO Lord John Browne said that BP could stand for "Beyond Petroleum," when he launched the company's first tentative moves away from oil and gas. Today's strategic shift could be called "Back to Petroleum" – a move that pleases some shareholders and frustrates others. BP and Elliot Management both declined to comment, leaving the market to interpret the implications of this significant change in direction.