BP's Strategic Shift Under New CEO: Focus on Oil and Gas
BP, under the leadership of new CEO Murray Auchincloss, has enacted a hiring freeze and halted new offshore wind projects, signaling a renewed focus on oil and gas investments. These previously unreported moves cater to investor demands amidst dissatisfaction with BP’s current energy transition strategy, sources within the company revealed.
Priotizing Oil and Gas
The pivot marks a significant departure from former CEO Bernard Looney's strategy, which heavily invested in renewables. Looney’s approach had led to a decline in BP's share value as renewable profits diminished, whereas oil and gas profits rose post-COVID-19 and after Russia's invasion of Ukraine. Auchincloss and Chief Financial Officer Kate Thomson are keen on channeling investments into existing oil and gas assets, particularly in the Gulf of Mexico and U.S. shale basins, where BP has substantial operations.
BP's shift includes reassigning employees focused on new renewable opportunities to ongoing offshore wind projects in Britain and Germany. While Auchincloss promises a pragmatic approach, some job cuts in the renewables sector are anticipated, though specifics have not been disclosed. Additionally, BP has implemented a company-wide hiring freeze, with few exceptions such as frontline and safety roles.
Strategic Investments and Cost-Saving Measures
Auchincloss has underscored a more practical approach since taking over, following Looney’s resignation related to undisclosed relationships with employees. A key announcement in May revealed a $2 billion cost-saving initiative slated to conclude by 2026, alongside a reduction in the executive team from 11 to 10 members.
The CEO’s six new priorities aim to simplify and enhance BP's value. These involve focusing the business and achieving further efficiencies and growth in crucial projects. BP's recent acquisition of Bunge's 50% stake in the Brazilian sugar and ethanol joint venture for $1.4 billion exemplifies its commitment to biofuels and short-term low-carbon ventures that promise quicker returns. BP confirmed these initiatives align with its goal of increasing company value.
Leadership Changes and Market Dynamics
High-profile leadership transitions under Looney included the hiring of Anja-Isabel Dotzenrath, who stepped down for personal reasons in April. William Lin, her successor, is expected to center his efforts around gas operations. BP's share performance lagging behind rivals has fueled speculation of potential acquisition risks, putting additional pressure on Auchincloss to reassure investors balancing the need for decarbonization with immediate fossil fuel demand.
Renewables and Fossil Fuel Commitments
In 2023, BP allocated $2.5 billion towards renewables, hydrogen, electric vehicle charging, and biofuels from a total capital expenditure of $16 billion. BP stands alone amongst major oil firms in maintaining oil and gas output reduction targets. February 2023 saw a revision of BP's flagship commitment, reducing the planned cut in oil and gas output from 40% to 25% by 2030, though it upheld its renewable targets, including the development of 10 gigawatts of installed capacity.
Further softening occurred recently in the language regarding 2030 targets. BP has augmented its exploration team in efforts to sustain and grow output, with new personnel focusing on expanding fields in the Gulf of Mexico. The company restructured its mergers and acquisitions division, consolidating it under business development led by Sam Skerry. As of October last year, BP had identified 18 billion barrels of oil and gas in resources, sufficient to sustain 20 years of production at 2022 levels.