BP’s 2024: A Strategic Retreat?

2024 marked another tumultuous year for BP, following the dramatic sacking of CEO Bernard Looney in September 2023 for misleading comments regarding relationships with colleagues. His successor, Murray Auchincloss, has reversed the firm’s ambitious renewable energy commitments, doubling down on oil and gas amidst increasing scrutiny from investors, as the firm’s share price continues to crumble.

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In 2020, Looney positioned BP as the first ‘oil major’ to publicly announce a phase-out of oil and gas in favour of a cleaner future. BP pledged to cut oil and gas production by 40% by 2030 while increasing its renewable energy capacity from 2.5 GW to 50 GW. Additionally, BP halted geological exploration in new territories and slashed their world-renowned exploration team from over 700 staff to fewer than 100 within months. Exploration spending crashed from a peak of $4.6 billion in 2010 to less than $400 million annually, signalling a bold pivot to green energy.

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This transformation echoed BP’s earlier attempt to reinvent itself with the “Beyond Petroleum” campaign in 2001. Then-CEO Lord Browne declared, “We need to reinvent the energy business, we need to go beyond petroleum.” Billions were invested in wind and solar farms, however, many of the investments failed and were quietly sold off over the next decade. Drawing on this previous calamity, Forbes reporter Scott Carpenter shrewdly remarked in 2020: “If the world does not follow the renewable energy transformation that BP is betting on, then investors might sour. What BP does then would be a true test of its commitment to today’s targets.”

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By 2023, BP had already scaled back its planned oil and gas production cuts from 40% to 25%. In 2024, these cuts were scrapped entirely. While BP still targets net zero emissions by 2050, it is expanding production in Iraq, Kuwait, and Mexico to boost oil and gas output. New offshore wind investments have been delayed, a possible sale of BP Wind Energy is under consideration, and hiring in renewable energy divisions has been frozen. BP’s CEO is adamant that the firm’s “direction is the same,” but this shift mirrors broader industry trends. BP’s rival Shell has reduced its presence in the European and Chinese electricity markets while curtailing offshore wind and low-carbon investments to reduce costs by $3 billion.

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BP’s strategic pivot has partly been enforced by its worsening financial performance. Since 2020, BP’s share price has dropped by 20%, leaving the company valued at $75 billion, far below its $250 billion valuation in 2006. Shareholders have signalled that renewable energy investments are not meeting their desire for short-term returns. Furthermore, BP risks being trapped in the so-called “valley of death,” where they are neither an oil company nor a renewable energy firm. Critically, current shareholders are uninterested in owning a renewable energy company and will likely sell once 20% of revenue is green, while climate-conscious investors may not buy in until BP achieves 50% green revenue.

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Despite these setbacks, BP is not abandoning renewable energy entirely but is being more selective, focusing on the highest-value projects. The company has completed the acquisition of Lightsource BP, a solar and battery storage developer with a 62 GW project pipeline across 19 countries. BP has also entered a joint venture with Japanese firm JERA Nex to create a standalone offshore wind developer and operator, JERA Nex BP, with a 13 GW project pipeline. This joint venture, based in London, delivers BP shareholders with a “capital-light” model by halving BP’s capital expenditure and removing debt from its balance sheet. Furthermore, BP is investing in emerging technologies like carbon capture and storage (CCS). It has acquired a 45% stake in the UK’s inaugural CCS project the Northern Endurance Partnership alongside Equinor and TotalEnergies, a project that will store 4 million tonnes of CO₂ annually. Similarly, BP has adopted a more selective clean hydrogen strategy, focusing on 5-10 high-value projects and shelving 18 less viable schemes.

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Over two decades after the ambitious “Beyond Petroleum” campaign, BP yet again finds itself retreating from a bold renewable energy strategy. Mounting pressure on the board and management team from shareholders has forced a dramatic U-turn. Investors have noted that while the other oil majors have stuck to their traditional strengths, their share prices have continued to rise. Critically, BP’s renewables division must adopt a more disciplined approach, with industry insiders criticising the oil majors for lacking the cost efficiency of smaller developers, often overpaying for assets. In hindsight, BP may rue its decision to dismantle its exploration team as it doubles down on oil and gas to ensure investor confidence. While BP’s ambitions were bold and admirable, achieving net zero by 2050 will require a more gradual transition, strategically investing profits from oil and gas in renewable energy to secure the firm’s long-term viability.

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