BP (BP) buckled to investor pressure and the rapidly altered political landscape on Wednesday by announcing it will slash investment in renewables in favor of fossil fuels, ending a five-year flirtation with its lofty green ambitions. Further rowing back on its climate commitments the British oil giant said renewable energy investment would fall by $5 billion a year to between $1 billion and $2 billion.
In return it will boost funding for oil and gas extraction to $10 billion annually as it pivots back to fossil fuels. Scrapping its plan to cut oil and gas production by 2030 it will instead grow production to 2.3–2.5 million barrels of oil a day by the end of the decade. This implies 9% output growth versus the previous target of a 25% reduction, an aim which was already down from a 40% planned reduction announced in 2020.
CEO Murray Auchincloss said the company would be “very selective” about investing in fossil fuel alternatives that help the energy transition. “Today we have fundamentally reset BP’s strategy,” he said. This is a reset BP, with an unwavering focus on growing long-term shareholder value.”
At the same time BP struck a $25 billion deal to redevelop Iraq’s oil and gas fields.
Elliott Scores Quick Win
It marks a major shift from plans started in 2020 under previous CEO Bernard Looney to cut oil and gas production to about 1.5 million barrels a day and make BP a net zero energy company by 2050.
But shares of BP substantially lagged peers and profits faltered in the last two years, placing the new CEO under pressure to take action. BP stock fell by about a third between its February 2023 height and December 2024. In the last five years Shell (SHEL) shares have risen by 58% against BP’s 8% rise, most of which is attributed to expectations about today’s strategy reset.
Auchincloss moved to cut jobs, spin off the company’s offshore wind business in a joint venture and was working on plans to offload BP’s onshore wind business, too.
However, the involvement of a prominent activist investor seemed to stir the pot and prompt swifter action. Earlier this month it was revealed that activist New York hedge fund Elliott Management had developed a 5% stake in the company, heaping further pressure on the leadership to prioritize cash generation and shareholder returns over green ambitions.
BP Prioritizes Returns
BP’s chairman, Helge Lund, described it as an “important strategic reset” for the oil major.
Under today’s plans, BP also wants to “significantly” increase cost reductions, raising the target to $4–$5 billion of structural cost reductions by end 2027. It’s targeting new divestments worth $20bn over the same time frame, including a likely sale of its Castrol lubricants business.
“This new direction places free cash flow growth, returns and value at its heart,” added Lund.
BP committed to return 30–40% of operating cash flow to shareholders, through share buybacks and a dividend, which brings it more in line with competitors. The company had previously targeted returns as a proportion of surplus cash.
Shares of BP in London (GB:BP) edged lower as change of direction had been widely anticipated.
Is BP a Good Stock to Buy?
Overall, Wall Street analysts have a Moderate Buy consensus rating on BP stock, based on five Buys, six Holds and one Sell. The average BP price target of $37.68 implies about 13% upside, though the strategy announcement could see analysts change their forecasts shortly.
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