BP Has a Final Chance to Return to Big Payouts
I warned that the company was on borrowed time. An investor revolt could ensue if the board doesn’t change direction — fast.
Time to go above and beyond.
Photographer: Chris J. Ratcliffe/Bloomberg
For the last five years, BP Plc has put ideology ahead of profitability. This week, its board of directors has a final chance to change direction. If it doesn’t, an investor revolt will follow, and many executives could be out of a job by summer.
The company’s capital markets day on Feb. 26 is the most anticipated Big Oil strategy update since, well, BP’s last master plan in 2020.
The most pressing question is seemingly contradictory: BP needs to reduce its huge debt pile, but it needs to do so while paying shareholders if not more, then at least the same as they were accustomed to. It’s the corporate version of squaring the circle. As difficult as it is, it’s possible. BP loves using its initials for branding wordplays. Once it was “Beyond Petroleum.” Let’s hope “Big Payouts” will be the replacement for the current less-than-flattering moniker: "Beyond Profits."
Five years ago, the British oil company bet its century-long business model was over: Oil demand had peaked, and the future was renewables, it said. Thus, BP announced a strategic shift that would see the company redirect its investment toward green energies such as solar, wind, hydrogen and biofuels. By 2030, the company had planned to produce 40% less oil and gas than it did in 2020. Under Chairman Helge Lund and former Chief Executive Officer Bernard Looney, BP became the first oil major to embrace net zero.
The ideological shift failed spectacularly: Not only did oil demand growth continue but returns on renewables were far lower than expected. Rather than admit defeat, BP persevered, using windfall profit from the Russia-Ukraine war as a smokescreen. But investors were abandoning the company. Its shares trailed every rival. Its market value plunged. Its debt soared.
The knockout came when the board had to fire the strategy’s architect, Looney, for unrelated “serious misconduct,” replacing him in 2024 with his number two, Murray Auchincloss, who, frustratingly, pledged continuity. A year later, the new CEO and the old chairman have finally admitted defeat.