BP: Back to the past...
Murray Auchincloss has not been particularly creative during his time in office so far. And that is unlikely to change when he presents the new strategy tomorrow at BP's capital markets day. Reuters reports, citing insiders, that Auchincloss apparently wants to take BP back to the past.
According to reports, BP's former CFO will tomorrow abandon the goal of increasing renewable energy capacity 20-fold to 50 gigawatts between 2019 and 2030. In addition, investments in low-carbon projects are to be significantly reduced. And it may even be possible to sell off stakes in wind and solar parks. The money will then presumably be used to increase dividends and buy back even more shares.
Clearly, the market environment has changed with the re-election of Donald Trump, a climate skeptic and clear supporter of fossil fuels. In addition, activist investor Elliott Investment Management is pushing for exactly that: squeezing short-term returns out of the company at any cost.
Under the previous BP CEO Bernard Looney, BP committed in 2020 to reducing oil and gas production by 40 percent by 2030 and, to compensate, to significantly increase its commitment to renewable energies. In 2023, the reduction target was then reduced to 25 percent.
Resistance is brewingBut there is also resistance at BP. For example, 48 investors are calling for a shareholder vote on a possible departure from the climate targets that Auchincloss is pushing forward. The letter, which the Wall Street Journal had access to, was sent to the chairman of the supervisory board, Helge Lund. In 2019, 99 percent of the capital present voted to support a binding resolution stating that BP's investments and strategies were compatible with the goals of the Paris Climate Agreement. And at the 2022 Annual General Meeting, a majority voted to reduce CO2 emissions by 40 percent by 2030 (compared to 2019).
It will be exciting to see who wins. When asked, BP declined to comment on the Reuters reports. There should be clarity tomorrow. In any case, the regression in strategy would no longer be surprising. Auchincloss had already repeatedly seemed relatively unimaginative in the last quarterly results. The sole focus on the highest possible dividends and share buybacks clearly showed that he is not pursuing any long-term strategy, but is only interested in keeping short-term earnings as high as possible.
Clearly, a strategy geared towards short-term returns could initially have a positive effect on the share price. And of course it is also entirely possible that oil and gas will be needed for much longer than is actually hoped in view of climate change. But relying as clearly as Auchincloss only on oil and gas, i.e. on energy solutions from the 20th century, is simply not enough for a company of this size. After all, the global player BP wants to remain one of the leading energy companies in the coming decades. But in this respect, the British are in danger of losing out to more balanced competitors such as TotalEnergies or Shell. Nevertheless, the following still applies: Anyone who is on board with the cheaply valued dividend pearl can still stay. The stop price should be left at EUR 3.50.
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