Helge Lund, the outgoing chair of BP, sat impassively for an hour last Thursday at the company’s annual meeting, maintaining a stony expression as small shareholders took their opportunity to voice polite but firm discontent with the energy major’s performance.
Only once, when asked if he was actually spending enough time thinking about BP (he also chairs the Danish pharma group Novo Nordisk), did Lund lean forward to insist that he did pay sufficient attention to BP.
In the end, the shareholders delivered their verdict: a quarter of them voted against his reappointment, the biggest rebellion against a FTSE 100 chair for five years. Lund quickly left the room after the result.
While the vote against Lund was symbolic, since he has already said he will leave BP, the frustration with the company’s strategic and financial crisis is not. Christopher Kuplent, an analyst at Bank of America, describes it as “a company with a chip on its shoulder”.
“It believes it should be a supermajor, but it isn’t,” he adds.
Five years after a decision by Lund and former chief executive Bernard Looney to bet the company’s future on renewable energy, BP is more a middle-tier energy company with uncertain prospects, worth just over a third of its rival Shell, and the most obvious takeover target in the sector.
In prepared remarks to the annual meeting, Murray Auchincloss, the group’s current chief executive, said the company recognised the valuation gap with peers. “We intend to close it,” he added.
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Lund admitted that BP had “pursued too much while looking to build new low-carbon businesses” and that some existing businesses underperformed. “I can assure you lessons have been learnt from this.”
It is also under attack from activist shareholder Elliott Management, which has been canvassing the opinions of other investors in recent days after building a near £4bn stake.
One senior former civil servant says BP’s leaders recently asked him if he thought the UK government would step in to protect the company from a foreign buyer.
Auchincloss has pledged a “fundamental reset” that envisages $20bn of asset sales, 95 per cent of capital expenditure going into oil and gas, and a tighter grip on costs and debt.
But his delay in jettisoning Looney’s plans and a series of poor quarterly results have put the company under intense pressure. “I don’t think he [Auchincloss] is in control of events,” says one former senior BP executive. “He’s a good guy but he’s in a difficult position now. Events will run their own course.”
Asked how BP ended up here, a series of former BP executives and advisers describe a company that grew rapidly because of its skills both at discovering oil and gas and at doing huge deals, but which has lurched from one catastrophe to the next, often tripped up by its own overconfidence.
“In the industry, BP stands for banana peel,” quips one former BP contractor, “because they slip up so often.”
BP was the first company to promise action on the existential questions posed by climate change — but also the last of the European majors to set out a strategy in response.
In 1997, then chief executive John Browne made a landmark speech at Stanford University, in which he pledged action from BP in controlling its emissions. He then rebranded BP in 2000 with a green sunflower logo and the slogan “Beyond Petroleum”, a move widely interpreted as an attempt to move the company away from oil and gas.
“John is probably one of the greatest strategic minds we’ve ever had in terms of looking way ahead of where we are now to try to position the company,” says Brian Gilvary, BP’s former chief financial officer.
Browne explains the sunflower logo came about because BP needed a new identity after its $48bn merger with Amoco in 1998 and $27bn purchase of Arco in 2000. The new slogan “tested very well, so we said, ‘OK, let’s use it.’ But it was not meant to be taken literally that we were going to get out of petroleum,” he tells the Financial Times.
He adds that BP’s investment into renewables in the late 1990s and early 2000s was carefully calibrated. “It was very early days and it was unclear if you could make money,” he recalls. “You have to get the proportions right and you have to really understand the risk/return, and in those days there were very few returns in renewables.”
The end of Browne’s tenure was marred by an explosion at the Texas City refinery in 2005, which killed 15 people, and an oil spill in Alaska the following year. He resigned in 2007 after failing to stop a newspaper from publishing allegations made by his former lover.
Then came an existential crisis for BP. The 2010 Deepwater Horizon disaster in the Gulf of Mexico was the largest marine oil spill in history and cost the company more than $70bn in clean-up costs, penalties and compensation — a sum it is still paying off today.
One former BP executive who was at the company during the aftermath says the impact was far greater than simply the financial cost, or the damage to its reputation in the US, which was at that point the company’s largest business. “It was also the psychic energy and time expended on it. It took so much headspace from the leadership,” the person says.
As BP struggled for survival in the wake of the calamity, the world was changing again. After the 2015 Paris Agreement on climate change, a split emerged between the US and European oil majors.
ExxonMobil, Chevron, ConocoPhillips and others stuck to their core mission of pumping oil and gas, while Europe’s majors saw an opportunity to move beyond oil and gas, into solar and wind-generated electricity.
Bob Dudley, the American who ran BP for a decade after Deepwater Horizon, declined to pick a side. But one former senior executive says that “at some point, we had to figure out what we wanted to be”.
And after its rivals Shell and TotalEnergies set out ambitious plans to move beyond oil and gas to building solar and wind farms and selling electricity, the pressure for action rose inexorably.
“I remember going into a meeting with investors in Toronto [in 2016] where they said we were the next Big Tobacco,” says Gilvary.
The appointment in 2019 of Lund, the former Statoil and BG Group chief executive, as chair of BP marked the beginning of its full-blooded embrace of cleaner energy.
Lund promised that he would oversee two transitions: BP’s appointment of a new chief executive to replace Dudley, and a pivot to being a global energy company, rather than an oil and gas major. “We enter a new decade with a new company purpose: to reimagine energy for people and our planet,” he wrote in the company’s 2019 annual report.
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The board believed there was a compelling case to build a leading position in the energy transition, say several former insiders, and was worried about being left behind as others scooped up subsidies and flows of money from investors allocating capital according to environmental, social and governance criteria.
“It was a changing landscape. Remember, the shares had been treading water for 10 years, and we were in a conversation with Larry Fink of BlackRock and Mark Carney and all these progressive investors, the rating agencies and climate consultancies,” says one former senior BP executive.
Lund asked the three internal candidates to replace Dudley — Looney, the head of BP’s oil and gas production, Gilvary, the chief financial officer, and Tufan Erginbilgiç, the head of BP’s refineries — to set out their vision for the company.
“Bernard’s view had to do with leading the energy transition and being a force for good, and the board selected him for various reasons but not least because he was the most committed to that agenda,” says one of the people with knowledge of the process. “Tufan was probably the least convinced about the direction. Brian was in the middle.”
Looney announced BP’s green pivot in February 2020 and promised to lay out more detail later in the year, after the company and its advisers, primarily McKinsey, worked on translating the vision into hard numbers.
By the end of 2020, BP had made a series of promises that went far beyond the ambitions set out by its peers. It was the only oil major to pledge an actual cut in production — a huge 40 per cent fall by 2030 — while spending on green energy would increase tenfold in the same period.
As oil and gas revenues declined, earnings from renewables would grow, and BP pledged to build a huge 50GW of wind and solar capacity, enough to power every home in Britain.
Several people note that BP’s history of pulling off huge deals, and its comeback from the Deepwater Horizon crisis, gave it the confidence to bet it could succeed with such a transformation. “It always thinks the glass is half full,” says one former executive. “Actually three-quarters full,” jokes another.
One person familiar with the plan notes that the 40 per cent cut in oil production was to be made in parts of BP’s portfolio where margins were low — for example in countries where BP was simply being paid fees to drill oilfields — and that these would be offset with relatively higher earnings from other fields.
Looney insisted the numbers underlying his business case were robust and resilient; some critics say they were retrofitted to his vision. One person who worked on the plan simply says that while the financial modelling was thorough, it reflected the situation at the time.
“One of the things that was true in those days was the cost of money was basically zero,” the person continues. “If you think that governments are going to write cheques, that underwrites the profitability of a lot of those investments.
“The hard truth is that you run as many numbers as you can to give yourself confidence and see where the weaknesses in the proposed strategy lie,” the person adds. “But in the end you take a bet. That’s the nature of business.”
As Covid-19 lockdowns sent the oil price crashing in 2020, Looney was initially feted for his vision.
But by the end of that year, as BP revealed more details of its plan, particularly during “BP Week”, a three-day event for investors in September, there was growing unease.
“We overcooked it. We talked too much,” says the former senior executive. “The more we talked, the more detail we provided, I think the less we instilled confidence in what we were doing,” the person adds. The company’s shares fell by a quarter in the six weeks after BP Week, compared with a 16 per cent drop for Shell.
Looney declined to comment, but one person close to him notes that the world changed significantly almost as soon as BP made its pivot. Inflation surged after the Covid pandemic, with the resulting higher interest rates making borrowing more expensive.
Western governments were too stretched by the costs of pandemic-era bailouts and of providing military support to Ukraine to be able to keep supporting the green agenda. Only China has been able to continue with a rapid energy transition; other blocs have slowed down.
But the increase in energy prices after Russia’s invasion of Ukraine masked any weaknesses in BP’s plans. The company’s bumper profits meant investors were relaxed about the huge number of green projects it had embarked upon, in everything from wind and solar to hydrogen, biofuels and carbon capture, unsure of which ones would eventually prove profitable.
Nor did this seemingly scattergun approach end Looney’s career at BP. Rather, it was a failure to disclose past personal relationships with other employees to the board that triggered his sudden resignation in September 2023.
Only then did investors begin seriously questioning the strategy.
Auchincloss, Looney’s longtime lieutenant from the days when the two men ran BP’s North Sea operations together, took over as chief executive.
But he did not jettison the green pivot for more than a year, even as BP’s quarterly results and share price performance diverged alarmingly from those of its peers.
In his defence, Auchincloss said that he was putting the pieces in place so that investors would take him seriously when he officially ditched Looney’s plan. “You don’t announce a strategy change until you change it,” he said in an interview with the FT in February.
“You can see from all the actions I’ve been taking over the past 12 months [that] we trailed it pretty strongly throughout the year. And then you change your language when you’re ready and supported fully to go do it.”
BP says investors back the new strategy of refocusing on oil and gas. But it is not hard to find scepticism over whether the company can execute it. The company’s oil and gas reserves have been depleted after five years of stepping back from new exploration, following a Looney promise to stop searching for oil outside of existing basins.
“If you are an explorer, there isn’t much point in sticking around after that,” says the BP adviser. The person close to Looney says there is “zero evidence that exploration teams had been whittled away”.
Analysts remain concerned about the company’s $50bn of debt, including leases and hybrid bonds, especially with oil prices now more than $6 a barrel below the $71.50 that BP assumed as an average for this year in its most recent investor update.
“I find it amazing that after all this time they haven’t become more conservative,” says Kuplent at Bank of America, adding that ever since its near-death experience with Deepwater Horizon, the company had grown comfortable in carrying a higher level of debt than peers and spent huge sums on deals that it hoped would propel it back to the top table.
Auchincloss promised shareholders at the annual meeting that he would only think about four things: cash flow, costs, debt and higher returns. He has previously said he will keep options open on renewables.
Several former executives agree that climate change continues to pose an existential threat to oil and gas businesses and that staking the business on fossil fuels may prove to be a poor long-term strategy.
But others believe BP should cut its losses and quit renewables businesses altogether. “BP really has to sort itself out,” says one. “It must be abundantly clear that its skills are oil and gas, and it has to get back there.”