Ron Busso
LONDON (Reuters) – BP (NYSE:) softened the wording of its pledge to cut oil and gas production in 2030 to reassure investors about its energy transition strategy and close a yawning price gap with rivals.
Chief executive Murray Auchincloss has changed the London firm’s strategy in recent months to focus on profit. He has been less assertive than his predecessor Bernard Looney about BP’s transition to renewables and low-carbon energy.
BP shares are currently trailing rivals Shell (LON:), TotalEnergies (EPA:), Exxon Mobil (New York Stock Exchange:) and Chevron (NYSE:), based on a number of key indicators that reflect concerns that BP is not investing in the most profitable parts of its business, primarily oil and gas.
Auchincloss did not rescind the main target announced by Looney in 2020 and then softened it in 2023, which would require BP to cut oil and gas production by about 25% between 2019 and 2030 to 2 million barrels of oil equivalent per day (boe ). BP is the only major oil company with output reduction targets, a pledge that has some investors worried.
Speaking to Reuters on Tuesday after BP announced first-quarter profit of $2.7 billion, Auchincloss said BP could hit or miss its 2030 target.
“Two million (bonds) is a decent number to stick with right now. Could it be higher? Yes. Could it be lower? Yes”.
PRAGMATIC APPROACH
Auchincloss, who took office in January following Looney’s shock resignation last September, said he would take a pragmatic approach.
Auchincloss said BP has more than 30 projects across its business and will have to decide whether to pursue them in the coming years.
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“And as we make these decisions based on a profit-based approach, it will help understand what we think our production will be in 2030, but I’m focused on profit and cash flow, not volume,” Auchincloss said .
In February, he said he expected BP’s output to grow 2% to 3% through 2027.
Earlier this year, Shell CEO Wael Sawan also softened the company’s emissions reduction targets, citing expectations of strong gas demand and uncertainty over the energy transition, as he also seeks to boost Shell shares.
Biraj Borkhataria, head of European research at RBC Capital Markets, said he expects BP to increase its spending on oil and gas production, known as exploration and production.
“BP has stressed that it is focused on profits and so I expect the next iteration of the capital allocation strategy to include higher mining capital expenditure (capex) and lower allocations to certain aspects of transition growth engines.”
“Overall, this should result in higher production than the 2 million barrels per day target in 2030,” Borkhataria said.