BP changes course: oil, gas and a focus on profitability, renewables move into the background

BP chief executive Murray Auchincloss has confirmed a major change in the British energy company’s strategy. Instead of its previous tilt towards the green transition, BP is returning to fossil fuels. The new direction is intended to deliver higher returns for shareholders and strengthen the company’s position in the energy market. The figures speak for themselves: BP plans to increase investment in oil and gas by 20%, to 10 billion dollars a year. By contrast, spending on renewable energy will be cut by more than 5 billion dollars.

The chief executive of British energy company BP confirmed the strategic shift, which had already been signalled last year, in an interview with Fortune 500. The company plans to return to its traditional roots—oil and natural gas—and significantly scale back its ambitions in renewable energy.

As recently as 2020, under then-CEO Bernard Looney, BP announced an ambitious plan to become a net-zero company by 2050. This included, among other things, cutting oil and gas production by 40% by 2030 and making massive investments in renewable energy. The situation is now different.

BP is selling its US portfolio of onshore wind farms while also shedding a large part of its global offshore wind business. The company is also selling a 50% stake in its Lightsource solar division and has sold its billion-dollar stake in the Caspian Sea’s TANAP gas pipeline to Apollo Global Management.

Investors back the moves, environmental groups criticise them

Analysts see these moves as a sign of the company’s flexibility: BP is adapting to market changes and focusing on increasing shareholder value. But the shift away from renewables has drawn criticism from environmental groups and some investors, who are concerned that BP’s commitments to cutting emissions and climate responsibility will be weakened.

By contrast, activist hedge fund Elliott Management has strongly backed the strategy. The fund recently acquired a stake of almost 5% in the company and has long pressed BP’s management to focus on higher profitability and efficiency.

Chief executive Murray Auchincloss said of the new direction: “We were just chasing too many things. Let’s stick to what we’re good at.” In his view, it is time to return to basics and once again build the company on the strong foundations of the traditional energy business.

BP is therefore beginning to resemble competitors such as the Netherlands’ Shell, which has long backed natural gas, and ExxonMobil, which has not turned away from fossil fuels despite pressure to achieve carbon neutrality.

More oil and gas, investment in biofuels and an end to hydrogen

The figures speak for themselves: BP plans to increase investment in oil and gas by 20%, to 10 billion dollars a year. By contrast, spending on renewable energy will be cut by more than 5 billion dollars. The company will also strengthen its upstream segment, increasing investment there by a further 2 billion dollars, and focus on developing areas with higher returns, such as biofuels and biogas.

At the same time, BP is stepping back from plans to invest in hydrogen solutions—the team focused on hydrogen and electric mobility has been disbanded. The company is retaining some transition technologies in its portfolio, however, primarily because it needs to secure its own electricity supplies—so-called “electrons”—for its trading business and customers.

There has also been an important change in how the company presents itself externally. BP has decided to be open again about what it is: an oil and gas company with an extensive refining business and a strong trading arm.

For this trading business to keep growing and respond to customers’ rising demand for electricity, it needs its own “electrons”—in other words, its own power sources. Some can be bought, but BP wants to generate some itself. This is where it is seeking a balance between traditional sources and new opportunities.