Activist investors rarely make quiet entrances, and Elliott Advisors is no exception. The US hedge fund has taken a near 5% stake in BP PLC (LSE:BP.), reportedly unhappy with the oil major’s strategy, which it reckons lacks urgency and ambition - and doesn't go far enough to revamp the oil major's fortunes.
In response, BP is looking to sell a 50% stake in its solar unit Lightsource, part of a wider £16 billion asset sale plan aimed at shoring up returns and lifting a share price that continues to lag peers Shell and ExxonMobil.
Same playbook?
It’s a playbook Elliott has used before. In 2022, it built a position in Canadian energy company Suncor Energy Inc. (TSX:SU) and pushed for sweeping changes - new leadership, a tighter focus on performance, and a clear path to value creation. The turnaround has been tangible: a new CEO, an improved safety record, and a 22% rise in the stock this year. Elliott has since doubled its stake, betting the gains have only just begun.
So, is BP now following the same script? We put the question to seasoned value investor Thomas Gouttman.
Gouttman’s Paris-based family office, Standard, realised substantial gains a few years ago from its involvement with Suncor - just as BP was entering a similar period of strategic soul-searching and scrutiny from activist investors.
The discreet firm, which resists publicity and manages assets on behalf of the Gouttman family and its close partners, is known to have strong links with senior figures at Elliott Management.
He welcomed BP’s recent strategic pivot, noting that it had been “underway for a while”, and drew a wry parallel with other oil majors wrestling with the energy transition: “All these companies are reciting St Augustine’s prayer for chastity: ‘Lord, give me chastity and continence, but not yet’.”
Familiar territory
He also emphasised that, though Elliott is operating in familiar territory, the two situations differ significantly, suggesting that the US activists would likely need to adopt a more aggressive approach with BP.
“Absent from the fact that they were both dealing with peak unpopularity, Suncor five years ago and BP today are vastly different beasts,” he explained.
“Both have been struggling with entrenched bureaucracies and operational challenges, but that really is where the similarities end. At constant production rates, Suncor had over twenty-five years of proven reserves and was trading at four to five times its high-visibility free cash flow.
"It had the entirety of its production and assets concentrated in its domestic market, arguably the safest jurisdiction in the world, with just a few well-surveyed and largely developed resource plays in proximity to one another, unlike a traditional major with fragmented and sometimes balkanized operations across the globe.”
Gouttman added: “Suncor had a focus on oil, was producing about a third of BP’s daily output, and hadn't committed billions to legacy projects with uncertain returns.
"In addition, none of its owners were contemplating a ground-breaking merger (in relation to a potential Shell-BP merger).
"In its exploration and production business, while you couldn't predict the selling price of barrels with precision, you could reliably estimate their finding, development and production costs, so you had at least one part of the equation solidly covered.”
Deliberate choice
Gouttman described his family's and partners’ investment in the oil and gas sector five years ago as “a deliberate choice made against a backdrop of accidental circumstances”, indicating that he’s never found the sector particularly attractive.
The Canadian situation was “one of a kind, because of specific export bottlenecks that wouldn’t last”, and generally speaking the sector has not much to offer to investors but “bond-like returns with equity-like risks, plus severe liabilities in terms of public image”.
Nevertheless, he admitted that BP was a standout in many aspects. “They’ve returned almost half their market cap in buybacks and dividends in the space of just three years. You’d be hard-pressed to find anything comparable among large market capitalisations nowadays.”