Bernard Looney, after four years talking about orderly transitions, has made a disorderly transition out of BP. Not being fully transparent with the board of directors – whether about past personal relationships with colleagues or anything else – usually has that outcome for a chief executive. On the company’s version of events, this was clearly a resigning matter.
The immediate question is succession. BP is the type of company that likes to promote from within and, with the 53-year-old Looney at the helm, the board probably thought it had a few more years to observe the internal jostling for position.
Murray Auchincloss, the chief financial officer, who has got the gig on an interim basis, is the leading contender, but energy companies usually prefer their permanent chief executives to have more frontline operational experience. City analysts speculated that the chair, Helge Lund, who was chief executive of BG Group until the gas firm was bought by Shell in 2016, would fit the bill. That feels unlikely. Lund presumably wouldn’t have opted for the non-executive life post-BG if he still wished to be a day-to-day boss.
As importantly, the appointment process will reignite the debate about the pace of BP’s transition towards net zero by 2050 “or sooner”. Looney himself wobbled – or so it seemed – in February when he scrapped the target of reducing hydrocarbon output by 40% by 2030 and opted for 25%.
On the other hand, he stuck to his original plan for BP to have 50 gigawatts of wind and solar generating capacity by 2030 while simultaneously revving up other “transition growth engines” such as biofuels, electric charging points and hydrogen. Even after the softening of hydrocarbon targets, BP is perceived within the big oil universe as a faster transitioner than Shell and positively speedy versus unashamedly oily US majors such as Chevron and ExxonMobil.
But, in an age of sharply higher oil and gas prices, Exxon and Chevron shares have flown and BP’s haven’t. The stock market has rewarded purer fossil fuels producers over companies pushing into zero-carbon generation (albeit BP is still projected to have 75% of its earnings from fossil fuels in 2030). It doesn’t help that BP is perceived to have overpaid for wind leases in the UK in 2021 and Germany this year and that the shares prices of wind specialists such as Ørsted have slumped.
So – in theory – if BP wished to slow its transition timetable, and be less windy and more gassy for a while, an unexpected opportunity has arisen. It is easier for a new leader to avoid the appearance of a screeching U-turn. No doubt a shift would be welcomed by a certain class of fund manager – those who aren’t convinced (whatever their ESG marketing brochures say) that renewables will earn the same long-term returns as oil and gas and would like bigger dividends now.
Yet a new direction for BP would surely also be ridiculous in these circumstances. First, the current strategy was endorsed by the entire board, not just Looney. Second, the detour in February was meant to be a definitive adjustment to market conditions. Third, Joe Biden’s subsidy-heavy Inflation Reduction Act may eventually succeed in retipping the balance in favour of low-carbon investments.
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Lund reportedly told staff on Wednesday that BP would “hold the course” on its transition timetable, a message echoed by Auchincloss. One would expect nothing else on day one, but both men would be well advised to get out and argue their case in front of investors. BP doesn’t need to go any slower.
