BP PLC (LSE:BP.) shares fell 2% as it confirmed a "reset" strategy will involve ramping up oil and gas investment to $10 billion a year and making a $5 billion-a-year cut to renewables and other areas of the energy transition.
On the same day that the UK Climate Change Committee urged the government to commit to an 87% cut on greenhouse gas emissions by 2040, largely by replacing gas heating and petrol cars with electric alternatives.
Chief executive Murray Auchincloss promised "very selective" investment will be made in biogas, biofuels and EV charging, along with "capital-light partnerships" in renewables and "focused" investment in hydrogen and carbon capture and storage (CCS).
Overall, investment in these energy transition businesses will be reduced by more than $5 billion a year from previous guidance, with the new target being to spend around $1.5-2 billion per annum.
Overall, this will mean annual capital expenditure is cut to $13-15 billion out to 2027, with higher structural cost reduction targets of $4-5 billion and $20 billion of divestments by the end of that year, including from offloading its share of Lightsource BP and a strategic review of Castrol.
Shares in BP, which earlier this month rose to an eight-month high above 460p, fell 2% to 429p after the mid-morning announcement before levelling off at 433p, a decline of almost 1% on the day.
Auchincloss said: "Today we have fundamentally reset BP's strategy. We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency.
"This is all in service of sustainably growing cash flow and returns."
He said growing upstream investment and production will "allow us to produce high margin energy for years to come" and that the investment changes reflected "an unwavering focus on growing long-term shareholder value".
Poor timing from BP
BP's shares fell as the strategy shift "means reduced shareholder returns in the short term", said Kathleen Brooks, head of research at broker XTB.
The problem for BP, she said, is that management "flip flopped away from net zero and back to oil and gas too late" and the timing of the reset "could not come at a worse time, when the price of oil is falling".
Brent crude prices were at a two-month low around $73 a barrel on Wednesday, having topped $100 in 2022 and traded above $80 and into the $90s for much of the past two years.
Brooks says Auchincloss's speech will not be the key event but rather that will be what the judgement is from activist investor Elliott Management.
Elliott’s time scale is what "really matters" for BP, and whether the investor will give the company time to see if its reset will work.
Climate criticism
Earlier, campaigners took to the streets to accuse CEO Auchincloss of a treacherous U-turn in abandoning the former pivot towards a greener energy mix that his predecessor had promised.
Mobile billboards driven about London said the U-turn on climate commitments is a "masterclass in greenwashing" and that BP’s reset was a "corporate way of saying 'we’re breaking our climate pledges'."
Charlie Kronick, senior climate adviser for Greenpeace UK, said the announcement from BP was "positive proof that fossil fuel companies can’t or won’t be part of climate crisis solutions; this conversation is over".
He noted that the Climate Change Committee also today called for UK emissions must be drastically slashed, and said "it’s up to the government to see this through and to ensure companies like BP pay their share for the climate damage they’re causing".
"The UK is seeing more and more storms and floods - with people’s lives, homes, or businesses ruined. Responding to the climate crisis can’t be driven by the whims of investors or the markets," he added.
Also today, the EU Commission published its Clean Industrial Deal, the grand strategy on how to simultaneously meet climate goals and revitalise manufacturing.
Part of the Commission's plan is to support industry by speeding up the roll-out of clean energy, accelerating electrification and to use energy "more efficiently and cut dependence on imported fossil fuels".