Murray Auchincloss, BP’s finance chief, tried to maintain calm as he spoke with BP colleagues via a video call arranged in a hurry this week.
The Canadian said, “The fundamentals are the same,” just hours after Bernard Looney’s shock resignation.
Auchincloss might well think so, but for many in the industry Looney’s departure is nothing less than an earthquake.
Looney, 53 years old, was the driving factor behind BP’s recent shift in strategy to go green. Looney was a workaholic who was viewed by his rivals as an excellent communicator.
He was quickly brought down on Tuesday after it was discovered that he had hidden his workplace romances. This, despite previously claiming to have declared everything last year.
Auchincloss, who was appointed caretaker manager in his absence, has taken over. Looney’s chaotic departure has caused instability, despite his efforts to maintain calm.
This has sparked speculation as to whether BP’s green plans would survive, and if the oil giant is now vulnerable to a takeover or breakup.
BP’s sheer scale may be its best defense against opportunistic acquisitions. Despite the shocking departure, BP shares are relatively flat, valuing the firm at PS90bn.
This is still a lot less than the US rivals Exxon Mobil (valued at $470bn or £379bn), and Chevron (valued at $319bn), and Shell’s arch-rival.
Megamergers have built the industry, even though it is a huge undertaking to swallow BP. BP has already done a lot: in 1998, it was the largest industrial merger ever in the history of the world when it acquired US oil company Amoco.
BP’s performance under Looney has been below that of its rivals, which makes it even more vulnerable. Bloomberg data shows that while ExxonMobil’s, Chevron’s and Shell’s stocks rose by 93pc each, their own stock only rose by 15pc.
RBC Capital Markets analysts say Looney’s “bold intention” to go eco did not always translate into good business decisions.
for example, the sale of fossil-fuel assets like BP’s Alaskan Oil Operations – which was done to pay off debt and fund renewable investments such as wind farms – were “executed during poor times in the cycle at low valuations”.
Even before Looney’s exit, BP was mentioned as a potential takeover target. Michael Stiasny said in January that he wouldn’t be surprised if a US competitor bought BP. Analysts at Citi also made a similar argument.
The national importance of BP is the biggest obstacle to a complete takeover. The UK government would scrutinize any bidders.
Energy is one of 17 sectors that will be given special consideration under the new rules.
Could BP be split up if not a takeover? A meaningful breakup of BP is unlikely due to the size and network of connections within the company. However, there are rumors that the new management could look to sell some green assets in order for them not follow Looney’s strategy.
Looney has committed BP to achieving net zero carbon emission by 2050. He also pledged to build 70,000 charging points for electric cars, develop 50 gigawatts worth of renewable energy, and reduce its oil and natural gas production by 40% by the end the decade.
In a speech he gave shortly after assuming the presidency, he stated: “We must change. And we must change deeply.” We have to, because the world and society are changing rapidly.
Climate activists praised the plan, but markets were less enthusiastic.
RBC wrote to its clients in a note this week that: “We believe investors are still unconvinced by the strategic shift – and even after the most recent pivot, earlier this year BP underperformed other supermajor peers ever since Bernard became chief executive.”
Looney, in response to skepticism and after the Ukraine War sent oil and gas profit back into the stratosphere , watered down BP’s green commitments by reducing a goal for reducing emissions by 2030.
RBC analysts stated that Auchincloss could now “step back” and focus more on the value of core business.
He could follow the example of Italian oil giant Eni. Eni is currently spinning off its €10bn renewables division (PS8.6bn), into a new company called Plenitude.
Ashley Kelty is the director of oil and natural gas research for Panmure Gordon. “BP’s green transition has been more aggressive than that of its competitors, and I believe this will be reversed.” This could mean going back to core business.”
He says BP could decide to sell various renewable assets, including its US wind farm business, in which it purchased a 50% stake from Equinor 2021. Or the wind projects that it is developing in the North Sea.
RBC stated: “Looking ahead, it is clear that the world has changed dramatically since Bernard became CEO.” The views on ESG and energy transition, as well as the outlook for commodity business, have changed dramatically.
A colleague in the industry said: “The question investors have always asked is how to extract value?” Spin-off the green energy business would be one way to do that.
“Another thing to consider is how quickly you make the transition. Do you speed up or slow down?
“I think that the answer will be pretty obvious – a slowdown.” The departure of Looney provides them with an opportunity to achieve this.
Laurent Segalen is a clean-energy investment banker and podcast host. He tweeted: “Memo for successor… More oil, Less ESG”, adding that the new chief executive should be “like Shell” by “behaving”.
Investors will likely ask many questions about how Helge Lund and the rest BP’s board handled the Looney case. This also puts the company in a shaky position when it comes time for a takeover.
The industry colleague said, “The board has hardly been able to cover themselves in glory.” It’s difficult to imagine BP’s current strategy surviving now that Looney has left.
Lund met with investors in an emergency meeting on Thursday, to try and calm the ship. Auchincloss had the same message: Business as usual. Time will tell whether this is wishful thinking.