BP at the crossroads – Q4 results

The Australasian Centre for Corporate Responsibility (ACCR) is commenting on BPs Q4 results, at which the company announced:

• Underlying profit decreased from Q3, at $2.26bn, to $1.16bn, even though oil and gas production is relatively stable (-3%), partly due to weaker realised refining margins
• Net debt is reduced to $23bn, as a result of $2.8bn of divestments and the issuance of around $2.5bn in hybrid bonds.
• BP expects another $3bn in divestments in 2025, as it works towards the completion of its $25bn divestment schedule.

Commenting on the results, Nick Mazan, UK Company Strategy Lead, ACCR, said:

“These are undoubtedly poor results for BP, but investors would be mistaken to think that the solution is to allocate more capital towards fossil fuels.

“It was inevitable that the profits made by oil and gas companies over the past few years were not sustainable. The waning of Asian demand is likely a sign of trouble to come for the sector, and in particular BP’s growth projects, which are shown to be relatively high on the cost curve.

“We support calls for increased capital discipline and, with most capital being allocated to fossil fuel projects, BP’s upstream capex deserves the most scrutiny. BP should make clear to investors how it will ensure that capital discipline is applied to its upstream projects and not just its low carbon portfolio.

“If, as widely forecast, BP drops its scope 3 production target, the risks of capital misallocation are only heightened. It places greater emphasis on BP’s capex framework, which our research shows is not fit-for-purpose and has allowed it to over-invest in fossil fuels.

“Many of BP’s potential FIDs are not cost competitive, with all of its material gas opportunities being more expensive than 60% of competing projects.

“BP continues to underperform peers, and there is a growing consensus amongst investors that governance changes are required to ensure that the company is able to effectively navigate the energy transition.

“BP has flagged ‘a fundamental reset of our strategy’ at its Capital Markets Day later this month. Investors will look to see how BP’s new strategy will respond to the impact of rapidly decreasing renewables costs which are destroying demand for fossil fuels, and not just more recent political trends.”

Background

In January this year, ACCR released “BP: Capex beyond Paris”, which found that BP’s capital allocation towards new oil and gas projects is not consistent with the goals of the Paris Agreement despite a binding 2019 commitment to shareholders. It is available to read online.