Oil & Gas: bp to Cut Clean Energy and Boost Fossil Fuels
bp has announced a significant strategy overhaul after a downturn in profits for 2024.
The company is dialling down its renewable investments by more than US$5bn annually, aiming for a strategic pivot that targets enhanced performance and optimises shareholder returns.
This decision is part of what bp calls a "fundamental reset," focusing sharply on tweaking its investment model and honing in on areas yielding the highest returns.
bp is also ramping up its commitment to fossil fuels, planning an annual investment around US$10bn.
The aim is to increase its oil and gas production to between 2.3 and 2.5 million barrels per day.
bp’s Chief Executive Murray Auchincloss said: “Today we have fundamentally reset bp’s strategy.
“We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency.
“This is all in service of sustainably growing cash flow and returns.
“We will grow upstream investment and production to allow us to produce high margin energy for years to come. We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the transition, including through innovative capital-light platforms.
“This is a reset bp, with an unwavering focus on growing long-term shareholder value.”
Why bp is changing its strategy
Helge Lund, bp’s Chair, said: “The board believes that this is an important strategic reset for bp and is confident that it, together with rigorous performance management, will deliver improved performance and sustainable value for bp’s shareholders.
“Over the past 12 months, we have worked closely with Murray and his team as they have developed the new direction, ensuring it reflects the significant changes we have seen in energy markets and our purpose of delivering energy to the world today and tomorrow.
“This new direction places free cash flow growth, returns and value at its heart."
In its 2024 results, the company reported a 35% fall in annual profits to US$8.9bn and a 61% drop in fourth quarter profits year-on-year.
Kate Thomson, Chief Financial Officer at bp, said: “In 2024, bp delivered operating cash flow of US$27.3bn.
“During the year, we introduced our target to deliver at least US$2bn of savings by the end of 2026 relative to 2023 and are making strong progress, achieving US$0.8bn of structural cost reduction.
“We raised the dividend per ordinary share by 10% and delivered US$7bn of share buybacks. Our focus on capital discipline and strengthening the balance sheet continues into 2025.”
bp attributed its quarterly drop in profit to “weaker realised refining margins, higher impact from turnaround activity, seasonally lower customer volumes and fuels margins and higher other businesses and corporate underlying charge”.
The energy landscape
The International Energy Agency’s (IEA) Oil and Gas Industry in Net Zero Transitions World Energy Outlook Special Report predicts that demand for oil and gas will peak before 2030.
However, it also says that oil and gas will remain necessary in 2050 — although on a reduced production scale.
As of 2022, oil, coal and natural gas were responsible for 80.9% of the world’s energy mix according to the IEA.
bp is not the first to pull back on investments in the energy transition — Equinor has cut its renewable investments from US$10bn to US$5bn in hopes of finding growth through oil and gas and TotalEnergies said it will reduce its low carbon energy investments.
Vicki Chilton, Partner in the Energy & Infrastructure team at law firm Birketts, says: “bp's decision to shift focus from green energy to oil and gas production could have several legal and regulatory implications.
"The company may face increased scrutiny from environmental groups and governments concerned about its environmental impact. This scrutiny could lead to potential legal challenges and regulatory pressures aimed at ensuring bp meets its climate commitments.
“Additionally, bp's reversal on its energy transition commitments might attract regulatory attention, especially if it conflicts with national and international climate goals.
"The UK government and regulatory bodies like Ofgem are dedicated to achieving renewable energy targets, and any significant deviation by major players like BP could prompt regulatory responses to ensure progress towards these goals. Overall, while BP's decision is driven by investor pressure and financial considerations, it is likely to face legal and regulatory challenges as it navigates the complex landscape of energy transition and climate commitments.”
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