BP softens tone on reducing oil production by 2030 to reassure investors – 05/08/2024 at 2:06 p.m.

BP softens tone on reducing oil production by 2030 to reassure investors – 05/08/2024 at 2:06 p.m.
BP softens tone on reducing oil production by 2030 to reassure investors – 05/08/2024 at 2:06 p.m.

((Automated translation by Reuters, please see disclaimer https://bit.ly/rtrsauto))

(Correct to read “deputy chief of” (not “head of”), in paragraph 12) by Ron Bousso

BP BP.L has softened its rhetoric on its promise to cut its oil and gas production in 2030 in an effort to reassure investors about its energy transition strategy and narrow a yawning value gap with rivals.

In recent months, chief executive Murray Auchincloss has shifted the London firm’s strategy to focus on returns. He was less categorical than his predecessor Bernard Looney on BP’s reorientation towards renewable and low-carbon energy.

BP shares today lag rivals Shell, TotalEnergies TTEF.PA, Exxon Mobil XOM.N and Chevron

CVX.N , based on a number of key indicators, reflecting BP’s concerns that it is not investing in the most profitable segments of its business, primarily oil and gas.

Auchincloss did not return to the flagship target announced by Looney in 2020, before watering it down in 2023, according to which BP should reduce its oil and gas production by around 25% between 2019 and 2030 to reach 2 million barrels of oil equivalent per day (boed). BP is the only major oil company to set reduction targets, and the commitment has worried some investors.

Speaking to Reuters on Tuesday after BP reported first-quarter profits of $2.7 billion, Auchincloss said BP may or may not exceed the 2030 target.

“Two million (boed) is a decent number to stick with for now. Could it be higher? Yes. Could it be lower? Yes.”

A PRAGMATIC APPROACH

Mr Auchincloss, who took office in January following Mr Looney’s surprise resignation last September, said he would take a pragmatic approach.

BP has more than 30 projects across its business that it will have to decide whether to pursue in the coming years, Mr. Auchincloss said.

“As we make these decisions based on yield, it will help us determine what we think our production will be in 2030, but I’m focused on yield and cash flow, not volume” , said Mr. Auchincloss.

In February, he said he expected BP production to increase 2% to 3% through 2027.

Earlier this year, Shell Chief Executive Wael Sawan also watered down the company’s emissions reduction targets, citing forecasts of strong gas demand and uncertainty over the energy transition, as it also seeks to boost Shell shares.

Biraj Borkhataria, deputy head of European research at RBC Capital Markets, said he expected BP to increase its spending on oil and gas production, the so-called upstream.

“BP has emphasized that it is focused on returns and, therefore, I expect the next iteration of the capital allocation strategy to incorporate an increase in upstream spending (capital expenditure), and a lower allocation to some aspects of its transitional growth drivers”

“Overall, this should result in upstream volumes above the target of 2 million barrels per day in 2030,” Borkhataria said.

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