Reuters reported that BP had scrapped their commitment to reduce oil and gas production, as Murray Auchincloss shifted the focus to more traditional sources of energy in response to investor demand for better returns.
When it was first announced in 2020, the goal of cutting oil and gas by 40% by the year 2030 was hailed at the time as being the most aggressive ever in the energy industry.
This move marks a change in BP’s strategy for energy transition under Murray Auchincloss who assumed the CEO role in January 2024.
The abandonment of ambitious 2030 oil and Gas output targets
When Bernard Looney, Auchincloss’ predecessor introduced the target of 40% reduction in carbon emissions, BP aimed at reducing these significantly and increasing investments into renewable energy.
The company lowered its target to 25% by 2023, in line with investor expectations that short-term profits are more important than long-term environmental goals.
BP now focuses on boosting its oil and gas production through new investments, particularly in the Gulf of Mexico and Middle East.
Auchincloss has been the CEO of BP since 2005. He was previously the finance chief. His priority, since becoming CEO, is to regain investor confidence through higher returns.
Investors are concerned about the profitability of BP under their current strategy, after BP consistently outperformed its rivals.
In an effort to distance himself from Looney’s approach, Auchincloss is pulling back on some of BP’s energy transition goals to focus on the most profitable businesses–primarily oil and gas.
BP maintains its long-term objective of achieving zero net emissions by the year 2050. However, it is focusing on more simple and targeted strategies. According to a BP spokesperson,
Murray stated at the beginning of the year that the company’s direction was the same. But we will deliver a more focused and high-value business.
At an event for investors in February of next year, Auchincloss will present his new strategy and remove the target 2030 to reduce oil production.
BP has not provided any specific guidance on production, but abandoning the key goal indicates a significant shift in operational priorities.
BP is in discussions to invest in gas and oil in the Gulf of Mexico and Middle East
BP has plans to invest heavily in three large developments in Iraq, according to sources.
The project will include the development of the Kirkuk oilfield, as well as the building of solar power and energy plants.
According to reports, the new contracts offer BP a more favorable profit sharing arrangement than prior arrangements.
BP has announced that it will increase its activities in Gulf of Mexico. It also plans to develop the Kaskida field and the Tiber Field, two large reservoirs.
It is considering acquiring assets in the Permian basin, an important area of US onshore oil production.
The acquisition of assets in 2019 has allowed BP to increase its presence in the area, and it already holds 2 billion barrels more than before.
After the Ukraine invasion, industry trends show a pullback on renewables.
BP has reduced its renewable energy ambitions despite its continued investments in low-carbon projects. For example, it acquired full ownership in its joint venture Lightsource BP.
Auchincloss has halted investment in new offshore and biofuels projects, and BP has reduced its portfolio of low carbon hydrogen projects from thirty to 10.
Rising costs and disruptions in the supply chain are threatening to undermine renewable energy’s profitability.
This shift is similar to actions taken by industry leaders, such as Shell. Its new CEO Wael Sawan, has also scaled back renewable energy projects, in favor of traditional investments, following the energy crises triggered by Russia’s invasion of Ukraine.
BP is under increasing pressure from investors to focus on short-term profits, but Auchincloss tries to find a compromise between the long-term goal of net zero emissions while maintaining its financial stability.
This company strategy recalibration is a reflection of the industry as a whole’s struggles to manage the financial pressures posed by energy transition, while still delivering strong returns to shareholders.
The report in this post BP switches gears and scales down renewables: to regain the trust of investors may change as new information becomes available.
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