Energy giant reconsiders transition strategy to regain market share
BP, one of the world's largest energy companies, appears to be backtracking on its bold oil and gas cutback strategy, raising eyebrows from investors and critics. New CEO Murray Auchincloss is adjusting the company's sails to sail in safer waters, focused on securing short-term profits and regaining market confidence. But will this turnaround bring more tailwinds or storms in sight?
BP and the oil and gas cuts: what's going on?
BP’s strategy, announced in 2020, was one of the most ambitious in the industry, aiming to reduce oil and gas production by 40% by 2030 while increasing investment in renewable energy. But with Murray Auchincloss taking over as CEO, that goal appears to be being reconsidered. In February 2023, the company had already revised the reduction to 25%, and now rumors suggest the original plan to cut oil and gas could be scrapped altogether.
BP shares rose 0,5% to 419p on the news, but the reality is that the company is still down more than 10% this year. That contrasts with the FTSE All-Share index’s 7% gain, suggesting that the market is keeping a close eye on the industry giant’s moves.
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New winds in the Gulf of Mexico and Middle East BP
International sources indicate that BP is targeting new investments in strategic regions such as the Gulf of Mexico and the Middle East, places where there is vast exploration and production potential. The quest to maximize profits from oil and gas, however, does not eliminate the company's commitment to the goal of net zero emissions by 2050.
The change in direction at BP reflects a growing pressure for immediate returns for investors, something also being seen at its rival Shell. Under Wael Sawan, Shell has similarly slowed its investment in renewable energy and focused on increasing its natural gas production.
The pressure on Auchincloss
BP's new CEO, who took office in January 2024, has a clear mission: to prevent the company's share price from falling and ensure that shareholders are properly rewarded. As a result, many analysts believe he may be forgoing the idea of reducing oil and gas production in favor of increasing profits in the short term. company is prioritizing resource-rich regions, such as the Middle East, to transfer their production.
Russ Mould, investment director at AJ Bell, believes BP is feeling “the brunt of the market” over its stance on the energy transition. “The problem with cutting hydrocarbon production is that it generates most of the money that BP uses to reward its shareholders,” says Mould. There is also speculation that, in addition to scrapping the cutback plan, BP may seek to increase its output, something that is likely to draw criticism from environmental campaigners and regulators.
BP what does the future hold for the sector?
BP is not alone in this change of route. Shell has also shown signs of backtracking on its energy transition commitments, adjusting its operations to ensure faster returns. However, Shell has been a strong supporter of natural gas, which many believe is a crucial component in the transition away from more combustible fuels such as coal and oil.
This renewed focus on fossil fuels, albeit less polluting, contrasts with the global movement towards renewable energy. For investors and experts, the question remains: how to calculate profit percentage in a scenario where sustainability goals are being revised? The answer to this question could determine the future of large energy companies.
Now the big question is: how far are BP and other companies in the sector willing to go to secure their profits without losing the support of the market and society? Are they sacrificing a sustainable future for short-term gains?