Nearly five years ago, BP embarked on an ambitious attempt to transform from an oil company into a company focused on low-carbon energy.
The British company is now trying to return to its roots as a major player in the oil and gas sector, with growth to match its rivals, to revive its share price and assuage investors’ concerns about to its future profits.
Its rivals, Shell and Equinor, a Norwegian state-controlled company, are also scaling back energy transition plans established at the start of the decade.
Their change of direction reflects two major developments: the energy shock caused by Russia’s invasion of Ukraine and the decline in profitability of many renewable energy projects, in particular offshore wind, due to the rise skyrocketing costs, supply chain issues and technical problems.
BP CEO Murray Auchincloss plans to invest billions in new oil and gas projects, including on the U.S. Gulf Coast and the Middle East, as part of his efforts to improve performance and increase yields.
BP has also slowed its low-carbon activities, shutting down 18 potential hydrogen projects at an early stage and announcing plans to sell its wind and solar power businesses. It recently cut its hydrogen team in London by more than half, bringing it down to 40 people, company sources told Reuters.
A BP spokesperson declined to comment on the layoffs.
Shell CEO Wael Sawan has pledged a ruthless approach to improving its performance and returns and closing the yawning valuation gap with major US rivals Exxon Mobil and Chevron.
The company has scaled back its low-carbon activities, including floating offshore wind and hydrogen projects, withdrew from European and Chinese electricity markets, sold refineries and weakened its reduction target carbon emissions by 2030.
Shell is seeking buyers for Select Carbon, an Australian company it acquired in 2020 that specializes in developing agricultural projects used to offset carbon emissions, sources close to the company told Reuters.
A Shell spokesperson declined to comment.
SKILLS SHORTAGE?
Some BP employees question whether the company retains enough staff with the experience and skills needed to become a major oil and gas company again.
Employees asked CEO Auchincloss questions during an online town hall in early October as he detailed some of his plans to right the ship, according to four employees who participated in the call.
He told them that BP would and could develop new oil and gas production, reversing his predecessor Bernard Looney’s strategy of expanding renewable generation assets, reducing emissions and reducing gradually the oil and gas production targets.
In conversations with Reuters, some employees said they doubt BP has enough reservoir engineers to revive oil and gas production growth after laying off hundreds of upstream division employees since 2020 .
BP’s spokesperson declined to comment on the public discussion.
Equinor, Europe’s main natural gas supplier since 2022, has launched a review of its low-carbon operations, internally called REN Adjust, which includes abandoning several early-stage projects to focus on projects more advanced offshore wind turbines.
When asked about this, Equinor said it was adapting to market realities. “The aim is to strengthen competitiveness and be competitive when the industry recovers from the current down cycle.
But companies have not completely abandoned investments in low-carbon energy. Instead, they are focusing on areas such as biofuels, which they believe can quickly generate profits.
Shell, BP and Equinor are also continuing to develop some offshore wind projects already underway, and say they could invest more if returns are competitive.
They are also developing hydrogen projects which will mainly be used to reduce the carbon footprint of their refining activities.
“What we’re seeing with our transitioning growth businesses is that we have to expect the same level of returns as our legacy businesses if we want to deploy significant capital over time,” Auchincloss told Reuters agency on October 29.
French company TotalEnergies has become the exception, continually investing in reducing carbon emissions and far exceeding the renewable energy capabilities of Shell and BP.
A BALANCING ACT
The slowdown in corporate energy transition plans coincides with warnings that the world is on the verge of missing the UN-backed target of limiting global warming to 1.5 degrees Celsius by the end of the century, which is necessary to avoid the catastrophic impact of climate change.
According to Rohan Bowater, an analyst at Accela Research, this means companies risk failing to meet or having to revise downward their emissions reduction targets.
And while industry executives focus on boosting near-term returns by spending more on oil and gas, the outlook for fossil fuel consumption is increasingly uncertain.
The International Energy Agency said last month it expected global oil demand to peak by the end of the decade, driven by rising sales of electric vehicles. .
Investors remain skeptical about the ability of European oil giants to maintain their profits. Their stocks have underperformed those of their U.S. rivals, even as climate-minded investors lament the shift away from renewable energy.
“For transition plans to hold water, companies need adequate incentives for management, a clear mandate from shareholders and a focus on demonstrating value,” Mr. Bowater.
“BP, for example, remains caught in the crossfire, struggling to balance low-carbon investments with shareholder expectations.
