BP Plc’s Chief Executive Officer Murray Auchincloss faces a critical moment next month when he makes the delayed presentation of a new strategy to investors.
The sprawling energy producer has fallen so far behind its fellow oil majors that it’s now worth less than half as much as Shell Plc. It’s even being caught by companies that were once just a fraction of its value.
This fall reflects strategic miscalculations that extend far beyond Auchincloss’s one-year tenure. His predecessor Bernard Looney embraced net zero, made a faulty prediction that global oil consumption had already peaked and drove expensive forays into offshore wind — only to be fired for his personal conduct before the strategy could be realized.
Faced with this performance, investors want to see change. The expectation is that Auchincloss will announce in February a further shift back toward oil and gas, yet there are many questions about whether this can be accomplished quickly enough.
“BP, I’m afraid, is still in an identity crisis,” said Bank of America’s Head of European Energy Research Christopher Kuplent. The way the company has shifted priorities back and forth between low-carbon energy and hydrocarbons creates “a big conundrum that Murray is, from a portfolio perspective, unequipped to address.”
Raising the stakes even further, BP announced on Tuesday that the strategy presentation would be delayed by two weeks to Feb. 26, and relocated to London from New York, to give the CEO more time to recover from a medical procedure. The company said the treatment was planned and he will return to work by next month, without giving more details.
BP is a 115-year-old global giant employing 87,000 people in everything from frontier exploration and oil refining to solar panel installation and electric vehicle charging. It’s a company that’s deeply entwined into British history, from the colonial expansion through the Middle East in the 1920s to the economic revival of the city of London through its privatization in the 1980s.
Yet today it is only worth about 10% more than EOG Resources Inc., which has only been in existence for about 25 years and has just 3,000 workers focused on US shale drilling.
The London-based company has seen its valuation plunge to a little more than $80 billion, a drop of about two-thirds since 2006. That’s well below the $136 billion market capitalization of Houston-based ConocoPhillips, an oil and gas producer that’s been BP’s junior for most of the past 35 years.
Changing Strategy
BP moved most substantially into low-carbon ventures in 2020 during the global pandemic, when Looney speculated that oil consumption may already have peaked and became the first CEO among the majors to pledge to achieve net-zero emissions and shrink hydrocarbon production.
It didn’t work out like that.
Energy consumption bounced back quicker than forecast after the threat of Covid-19 abated. Russia’s invasion of Ukraine prompted Western nations to put greater emphasis on securing supplies of oil and gas, while also wiping out a significant chunk of the reserves and production BP held through its stake in Rosneft PJSC. The offshore wind industry, which Looney put at the heart of his clean energy plan, suffered severe cost pressures that made many projects uneconomic.
BP has since been watering down Looney’s strategy in increments. It slowed the planned reduction in its oil and gas output in February 2023, stopped or paused a series of clean hydrogen projects, and announced the spin-off of its offshore wind business in December.
But the company has resisted making the more forceful pivot back into fossil fuels that some investors have been demanding. It has repeatedly reassured shareholders that it has enough untapped resources to fulfill its production plans, yet since 2020 it has given the green light to just one major oil project, the Kaskida field in the Gulf of Mexico.
“BP will pay the price for having neglected upstream for years,” HSBC’s Head of European Oil and Gas Research Kim Fustier said in a research note. “Rebooting BP’s upstream business is a decade-long endeavor, with little that can be done to accelerate the process.”
To be sure, the narrowing valuation gap between BP and its smaller rivals also reflects the shale industry’s great success. Companies like EOG and Diamondback Energy Inc. have helped the US steal market share from OPEC and turned the country into a net exporter of petroleum.
BP itself is also a producer of shale oil through Denver-based BPX, although it has taken a different approach to most other leading operators. Instead of supercharging growth with large deals, such as Exxon Mobil Corp.’s $60 billion purchase of Pioneer Natural Resources Co. last year, BPX plans to increase production organically from 450,000 barrels of oil equivalent a day in 2024 to more than 650,000 barrels a day in 2030.
In comparison, Exxon plans to produce as much as 2 million barrels a day from the Permian shale basin alone by 2027.
Gulf and Iraq
BP has emphasized the Gulf of Mexico as a growth engine. Its flagship project there, Kaskida, was given the go-ahead in 2024 and is expected to come online by the end of this decade, pumping about 80,000 barrels of oil a day. The company is also expected to make final investment decision this year on the nearby Tiber field, which was discovered in 2009.
The fields lie in the Paleogene section of the Gulf, where BP says 10 billion barrels of discovered resources are in place. That’s potentially in the ballpark of Exxon’s massive Guyana discovery, although the US company’s 11 billion barrels of recoverable resources off the coast of the South American nation has greater certainty of being brought to market.
Auchincloss has also been active in Iraq. The OPEC member holds the world’s fifth-largest proved crude reserves and BP has a long history there. Last month, it signed an agreement on technical terms for Kirkuk, an important step toward a full contract to redevelop the field in northern Iraq.
The project has significant potential, but brings its own set of challenges. BP initially agreed to help redevelop Kirkuk in 2013, an effort that was stymied by the fall of the northern city of Mosul to Islamic State the following year. The terror group has since been driven out of the region, but Iraq’s internal politics remain volatile.
Auchincloss finished 2024, his first year as permanent CEO, with BP’s share price 16% lower than when he started. Only twice in the past 20 years has the company suffered a bigger drop — in 2010 after the deadly Deepwater Horizon rig explosion in the Gulf of Mexico, and in 2020 after the Covid-19 pandemic battered the entire oil industry.
Coming up with a strategy to convince investors that BP can regain its place among the oil industry’s global giants is a significant challenge.
“I imagine they’ll do something to address the problem, but whether it’s material enough — I remain skeptical,” said Allen Good, Morningstar’s director of European oil and gas equity research. “Growth is going to be difficult.”
