BP has unveiled a bold new strategy to transform the 110-year-old oil & gas giant into an "integrated energy company", including a pledge to boost spending on low-carbon energy tenfold to $5bn a year by 2030.
The London-based supermajor intends to build significant scale in renewables and bioenergy, as well as seek early positions in hydrogen and carbon capture, chief executive Bernard Looney told journalists on Tuesday following its second-quarter results announcement.
It is aiming to develop 50GW of renewable energy generating capacity by 2030, a 20-fold increase on current capabilities.
As part of the plan, oil & gas production is expected to fall by about 40% — or one million barrels of oil equivalent per day — from 2019 levels. BP has also promised not to enter new countries to explore for oil and gas.
However, a "high-graded" oil & gas portfolio will continue to play a key role in underpinning cash flows and earnings for some time to come, said Looney.
Pivot to energy transition
“We have everything now that we need to deliver on that net-zero ambition and to compete through to transition,” said Looney, who took from Bob Dudley in February.
“We're going to create what we call an integrated energy company — an IEC.
“We're pivoting from being an oil company focused on the production of resources for markets to an integrated energy company that's focused on delivering solutions for customers.
“That's a very different kind of company. We're making that big change because the world's changing around us. And what the world wants from energy is changing.”
The $5bn annual investment in low-carbon energy represents about a third of current capital spending of about $14bn-16bn a year.
Chief financial officer Murray Auchincloss said the new investment in low-carbon energy was a “pretty material increase”.
“We think it's aggressive. We think it's what's needed for the transition of the company and the strategy, and we have to manage that against the prudence of making sure that we get the good returns for shareholders.
“So, although you might say the bulk [of investment] is going into the historic upstream, I'd say there's quite a big change and a quite a big pivot by the corporation as we move into the energy transition.”
Looney added: “I think there's a recognition... that... the existing business really fuels this transformation process. It enables the strategy.
“It's simply not possible to transform a company [that is] 110 years old by simply shutting off the taps in one area and simply pivoting 100% into the new.
“This is about making sure that we can continue to generate the cash flows from that base business that provides the fuel that's necessary to enable the transformation. "And I think no matter how you look at it, this is a significant scale up. This is a pivot in terms of how we're allocating capital.”
Looney emphasised most of the increase will be in the next five years.
“We'll be eightfold by 2025, so it's not all back-end loaded. It's front-end loaded.”
Giulia Chierchia, executive vice-president, strategy and sustainability, added: "We project hydrogen to be accounting for approximately 7-17% in our Paris [Agreement]-consistent scenarios of energy consumption by 2030.
"And we will be aiming to take early positions in hydrogen and carbon capture as we evolve our strategy.
"We're not starting from scratch. In terms of renewables we are building on Lightsource BP and our strong track record of solar development across 13 countries. We are building on our track records in wind development."
New capital budget
The new investment will come from a new financial framework and strict new capital budget, helped by BP's first dividend cut in a decade.
The new dividend of $0.0525 per share is half the $0.105 per share payout the previous quarter.
“The board's view is that, to invest in the transition, to strengthen the balance sheet and to reflect the uncertain outlook that's presented by Covid, we needed a new financial framework, and that includes a change to the level of dividend that we can afford," said Looney.
“But what we have come up with as a financial framework and as an investor proposition is something that we think is very compelling.”
'Prudent course of action'
"We said back in February [when BP announced its net-zero-by-2050 ambition] that no company of BP’s stature had gone as far, or committed so unequivocally, to transforming itself in the face of the energy transition," said Luke Parker, vice-president of corporate analysis at analyst Wood Mackenzie. "The guidance that BP laid out today brings that transformation to life — makes it real. It constitutes the clearest and most detailed roadmap to Big Energy that any of the Majors have provided to this point.
"BP's oil and gas business will shrink dramatically, while the low carbon business will grow strongly.
“If ever there was a moment to reset, this was it. Several factors have converged to make it possible: coronavirus and everything that comes with it; a strategic pivot to net-zero on the horizon; Shell’s dividend reset; a new leadership with credit in the bank. Our view is that BP has taken the prudent course of action."
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