BP to increase oil output as it dials back green energy ambitions

The chief executive of BP, Murray Auchincloss, has defended his decision to scale back the firm’s previous commitments to renewable energy and increase fossil fuel production, stating that the strategy has been positively received by investors. In an opinion piece written for The Times, Auchincloss highlighted that shareholders are primarily focused on how swiftly the company can deliver its revised objectives.

During a capital markets presentation in February, Auchincloss revealed BP’s plans to boost oil and gas production to between 2.3 million and 2.5 million barrels of oil equivalent per day by 2030. This represents a significant U-turn from the company’s 2020 pledge to cut oil production by 25% by the end of the decade. BP also plans to increase annual spending on its oil and gas operations to $10 billion, which marks a 20% rise compared to previous forecasts.

To help fund this pivot, BP has launched an ambitious divestment strategy, targeting $20 billion in proceeds by 2027. Core assets up for strategic review include its lubricants subsidiary, Castrol, and Lightsource, its solar energy division, where the group is reportedly seeking a joint venture partner. Auchincloss emphasised the role of these divestments in managing BP’s debt burden, which has been a growing concern for investors.

The company has also significantly reduced spending on its green initiatives, capping budgets for its “transition businesses” at $1.5 billion to $2 billion annually, which is $5 billion less than previously allocated. Auchincloss noted BP’s initial optimism for a rapid energy transition in 2020 was overly ambitious and led to misjudgements in its strategy.

Despite the shift in focus, Auchincloss’s proposals have yet to provide a substantial lift to BP’s share price. Since the announcement, shares have fallen nearly 6%, while industry rival Shell has experienced a more modest decline of 3% within the same period. This performance continues BP’s recent pattern of underperformance, exacerbating concerns among critics of the company’s long-term strategy.

BP is also facing growing scrutiny from activist investor Elliott Investment Management, which has acquired a near 5% stake in the company. Reports suggest Elliott remains dissatisfied with BP’s changes, viewing the measures as insufficient to address shareholder concerns. Elliott is reportedly advocating for deeper cost-cutting and a complete exit from green energy investments to maximise shareholder value.

Auchincloss’s tenure as permanent chief executive, which began last year after the sudden resignation of Bernard Looney, has been defined by efforts to reposition BP during a volatile period for the energy sector. Time will tell whether his renewed focus on traditional energy production will win over both investors and critics alike.