BP’s Bernard Looney claims he is “leaning” on a renewables strategy. Lean too far, and people can end up staggering. Energy prices rose last year. But shares of the former UK-listed oil major are far behind US rivals ExxonMobil and Chevron, which are less green-friendly.
Looney’s messaging as he announced record one-year profits on Tuesday reflected the pressure more than calls in Britain for higher wind taxes.
When the chief executive took over in 2020 he boldly promised to cut crude oil production by 23 percent to 2 million barrels per day by 2025. He planned to invest heavily in the energy transition. Two years ago, the resolve to abandon fossil fuels seemed weaker.
Last year’s excess cash flow of $19.3bn is in triple digits for 2021, so it’s British colors and tears. But BP’s effective tax rate has risen 2 percentage points in the past year to 34 percent, partly due to additional levies. Exxon is closer at 26 percent.
The total shareholder return for BP – and Shell – is about half that of Exxon and Chevron over a year. This reflects shareholder distaste for renewable investments as much as non-renewable taxes. BP added a $16bn-$18bn outlook for upstream production spending this year from a further $14bn-$16bn target in 2020.
Some of that increase comes from inflation. But oil production for 2025 is now only down about 11 percent from 2019 to 2.3 million barrels per day. That volume is needed, oil bulls say, to cover lost supplies from Russia. BP’s oil price assumption for revenue from an added barrel has risen from $60 to $70.
Higher upstream revenues are predicted to help pay for Looney’s renewable costs, a cumulative addition of $8bn by 2030. Nearly half of this money goes to hydrogen and renewables. The latter offers a low return on investment of no more than 8 percent.
Looney read the presentation room well, if not the mood of the green campaign was disturbed by prevarication. The stock price rose 5 percent. In fact, marginal buyers of BP shares believe that the energy transition will take longer, with the scope of oil and gas production. BP compromises in efforts to catch US friends.
The Lex team is interested in hearing more from our readers. Please tell us how the pressure on profits, renewables and higher taxes will work for BP in the comments section below