BP has long been synonymous with the oil and gas industry, however it has recently turned over a new leaf. Faced with climate change and fierce criticisms from environmental activists such as Greenpeace, the new CEO of BP, Bernard Looney, announced in February this year his ambition to make BP net zero by the year 2050. Praised by former critics such as the senior Greenpeace campaigner Mel Evans for representing a “necessary and encouraging start”, this climate plan was nonetheless questioned for its flawed mathematics. 6 months into his role as CEO and after a global pandemic and a record-breaking oil crash, BP has now produced a detailed and ambitious climate plan which hopes to revolutionize the oil and gas giant and repair its financial damages.

Coronavirus Impact

Amongst its other profound impacts, coronavirus has resulted in the demand for energy to drop an estimated 11% in Europe and 9% in the US, as the 5% reduction of global demand marks the worst drop since the great depression. This and the worst oil crash in history (cf. 1) – caused by Saudi Arabia’s influx of barrels, from 3.15 million per day to 11.34 million per day as a result of the oil price war between the OPEC+ countries – has made 2020, so far, one of the most challenging years in decades for the oil and gas industry, BP being no exception. Its upstream business side was particularly affected by price cuts due to the fixed production costs, and since the beginning of the pandemic its profits took a 66% hit and suffered a record loss of $16.8bn in Q2 2020 compared to a profit of $1.8bn in the same quarter the year before. Moreover, following the fall in oil prices BP announced a $9.2bn post-tax write-down on the value of its oil and gas assets. The result was a 15% cut of BP’s workforce, equivalent to 10,000 jobs, acting as both a financial cushion and a signpost of BP’s major business shift from an international oil company to an integrated energy company. BP asserted in their new climate plan that increasing their investment in non-oil and gas assets could help recover its losses and could diversify and increase the strength of their cash flows.

Figure 1.

New core strategy

On August 4th 2020 BP released a new climate plan filled with long-term objectives and goals for the year 2030 and 2050, officially announcing the reinvention of BP into a green and clean energy company, with its headlining goal being to have net zero emissions by the year 2050 or sooner. Its other primary aims included:

  • To increase their investment in low-carbon energy 10-fold by 2030, from $500M to $5B, and to partner with 10-15 new cities and 3 core industries in efforts to increase decarbonisation.
  • To double customer interactions to 20M per day, open thousands of new service stations and increase the number of electrical vehicle charging points from 7,500 to 70,000 by 2030.
  • To reduce their hydrocarbon production by 40% by 2030 via active portfolio management and by refraining from exploring into new countries.
  • To reduce their operational emissions by 30-35% and to reduce emissions associated with carbon in upstream oil and gas production by 35-40% by 2030.
  • To reduce the carbon intensity of their products for sale by more than 15%
  • To increase their production of renewable power from 2.5 gigawatts in 2019 to 50 gigawatts by 2030, this jump being equivalent to the UK’s total renewable electricity generation capacity[1].
  • To deliver long-term value for its shareholders.

Over-ambitious plan?

It’s safe to say that this climate plan is a step in the right direction, pioneering even, however could its numerous ambitious goals and promises prove to be a step too far? This plan is transformative and the first of its kind, with BP being the first major oil company to acknowledge the need to rapidly cut oil and gas usage at this scale, however being the guinea-pig carries major risks. We saw the failure of its rebranding in 2000 when BP Amoco became just BP, no longer standing for British Petroleum but Beyond Petroleum in an attempt to identify as an environmentally-aware energy and general services company. Having spent more money on the logo than on renewable energy the year before, this green shift and its $800bn of investment was a failure – let’s hope that they have learned from their mistakes. Moreover, despite the new climate plan’s accent on renewable solutions and energy, BP’s oil and gas spending will nonetheless continue to be the largest investment in its portfolio, the plan also fails to mention BP’s 20% investment in the Russian oil company Rosneft, one of the biggest oil producers in the world, leaving lots to be done in order to meet their environmental targets and countless pledges.

BP’s amibitious climate plans will still be fueled by oil and gas profits.

A promising start

Looney has however acknowledged these concerns, and reported that “it’s simply not possible to transform a company 110 years old by simply shutting off the taps in one area and pivoting 100% into the new”[1] – the transformation will only be possible if its base business continues to generate cash flows and therefore we cannot expect a sudden and extreme U-turn. With this being said, BP is well on track. Since the company pledged in 2001 to keep its direct operations emissions below 90.5 million metric tons of CO2, it has not only met this promise but comfortably beaten it year in and year out. Promisingly, BP has already agreed upon the sale of their global petrochemicals business to INEOS for $5bn, and amongst cuts in all of BP’s business units, the company has however not reduced their $500 million clean energy investment spending. Moreover, on the day of the release of BP’s new renewable goals, its share price increased by 7% (cf. 2), revealing the positive investor sentiment supporting the new carbon goals. This positive reaction should encourage not only greater growth from BP but should also push other major oil firms to follow suite. In fact, Shell Australia announced its acquisition of Select Carbon, a company specialised in developing carbon offsetting projects, just one day before BP released its new climate plan. Hopefully this marks the start of a race to renewability among the world’s largest oil and gas companies which should encourage the rest of the oil industry to meet similar environmental targets and which could lead to BP becoming an ESG investment destination – providing that its focus on green and renewable energy becomes its main line of business. An exciting future for the company and ESG investors awaits.

[1] The Sunday Times, 05/08/2020, pp. 32-33

Author: William Jones
William Jones
William Jones

As one of the first writers for Ingena Insight, Will is gaining experience throughout the industry. Will is trilingual in English, French, Spanish and has completed a year abroad which entailed a 6-month internship at Knight Frank Paris as an investment analyst and a 5-month internship at ESCP Business School’s Institute of Real Estate Finance and Management.

Analyst: Jacob Armstrong

Jacob Armstrong
Jacob Armstrong

After graduating from the University of Nottingham with a first in Bsc Hons Finance, Accounting and Management, Jacob joined the Ingena Analytics team. Providing thorough analysis on a broad range of topics, Jacob is a versatile and dedicated analyst.