BP chief insists he doesn’t care about rivals despite falling behind US players

Bernard Looney - REUTERS/Toby Melville/File Photo
Bernard Looney - REUTERS/Toby Melville/File Photo

The chief executive of BP has confirmed plans to refocus the business on fossil fuels but denied the move was motivated by the comparatively better performance of US oil giants.

BP’s shares climbed almost 7pc after it reported record annual profits of $27.7bn [£23bn] and boss Bernard Looney relaxed plans to cut back on oil and gas production.

The company had planned to cut oil and gas production 40pc by 2030 as part of a push into greener energy announced by Mr Looney when he took charge in 2020.

However, on Tuesday he said it would now only look to cut production by 25pc compared to 2019, meaning it will be producing 2m barrels of oil and gas equivalent per day by 2030, compared to about 2.2m per day currently.

BP will increase investment in both fossil fuels and renewables, with plans to invest up to $18bn per year split between the two until 2030.

Analysts said the shift would help make BP more attractive to investors, helping to close the gap in valuation between US and European fossil fuel businesses.

BP and other European oil companies are valued lower than US rivals, partly due to the perception that US companies are still focused on lucrative oil and gas despite pressure to shift to greener energy.

Exxon is now valued at $464bn [£386bn] and Chevron at $329bn, compared to BP at £92.5bn and Shell at £169bn. Over the past year, BP’s shares have climbed 25.27pc, while Exxon’s have climbed 37.61pc.

Mr Looney said the company’s pivot back towards oil was not driven by the gap with US rivals and said he “tries not to spend too much time about what other people are doing”.

“Governments and societies all around the world are asking companies like us to invest more into energy security today, as well as investing more into the energy transition,” he said.

“That’s our strategy and has been our strategy for three years - investing in today’s energy system, which is a hydrocarbon system, and investing in accelerating the energy transition.”

Plans to sustain oil and gas production mean BP's carbon dioxide emissions will also fall more slowly than planned, dropping by 20pc-30pc by 2030 compared to a previous goal of a 35pc to 40pc reduction.

Biraj Borkhataria, head of European energy research at RBC, said: “I think this is a meaningful step for an European energy company towards closing the narrative gap.”

“In reality, the [US and European fossil fuel] businesses are not that different - but this more balanced story is helpful.”

Barclays said BP’s pivot was “the best of both worlds”.

Analysts added: “We have in the past described BP as the most misunderstood companies [sic] in our coverage universe, and this strategy goes a long way to address the concerns.”

BP announced a 10pc increase in its dividend to 6.61 cents per share and a $2.75bn share buyback over the next three months. Its share price climb added £6bn to BP’s market capitalization.

BP’s $27.7bn annual profits were boosted by soaring oil and gas prices over the last year following Russia’s invasion of Ukraine.

The record haul has triggered fresh calls for tougher windfall taxes on oil and gas companies. It comes after FTSE 100 rival Shell last week reported record annual profits of $39.9bn.

Shadow chancellor Rachel Reeves on Tuesday accused the Government of "allowing energy companies to make profits that are the windfalls of war, whilst ordinary families and business pay the price".

Chancellor Jeremy Hunt said existing windfall taxes were “balanced and fair”.

The UK government has increased the tax rate on oil and gas drillers from 40pc to 75pc to help households struggling with soaring energy bills.

However, this only applies to UK operations, which are only a small part of BP’s and Shell’s global businesses

Mr Looney took over running BP in 2020 and quickly announced plans to reduce its focus on oil and gas and shift towards greener energies. The pivot followed huge pressure from politicians and campaigners for the oil and gas industry to cut its carbon emissions.

However, Mr Looney has also been under pressure to show investors that BP can get similar financial returns from wind and solar power as it can from oil and gas.

The company said on Tuesday it expected to achieve returns of more than 15pc from bioenergy, “double-digit” returns from hydrogen, and 6-8pc from renewables.

Mr Looney said: “We’re investing more into energy security and into the transition. We’ve got three years of track record now, three years of delivery under our belts. The company is running well, the strategy is working.”