Bernard Looney is betting the BP house on his green energy ambitions. In addition to cutting the dividend to free up cash for renewable investments, the CEO of what remains essentially a £ 61bn oil and gas company plans to cut hydrocarbon production by 40% to over the next decade.
The strengthened strategic commitment comes at a difficult time for today’s business. The concatenation of viruses, confinements, falling demand and falling prices made Tuesday’s dividend cut, BP’s first in a decade, almost inevitable.
Investors, who had pushed equity returns above 8%, versus the industry average of 5%, were not surprised. In fact, they were satisfied. BP shares rose 8%.
The $ 4 billion (€ 3.4 billion) of cash kept by the dividend cut will help Looney with the easy part of his mission. With net debt of $ 41 billion (€ 35 billion), roughly double the expected ebitda for this year, it is a comfortable distance from a net debt target of $ 35 billion (€ 29.7 billion).
Turning BP into a successful green energy company will be much more difficult. The plan begins with the reduction of the old. A mix of asset sales and new exploration restrictions is supposed to cut BP’s hydrocarbon production in half by 2030.
Then there is the growth of the new. Part of the money that is not spent on oil and gas will go to multiply investments in green energy by ten during the decade, reaching 5 billion dollars (4.2 billion euros) a year. That’s about a third of the annual capital expenditures expected for the next five years. Tangible targets include 70,000 electric vehicle charging points and 50 gigawatts of renewable energy capacity.
The cultural shift necessary to change a company that has spent the last century immersed in hydrocarbons will be difficult. And BP is late for the game. Denmark’s Orsted, the world’s largest wind energy producer, with a current value of $ 60 billion (€ 51 billion), completely abandoned oil and gas three years ago.
If their efforts to reduce carbon emissions fail, Looney and his successors could end up chairing an organization that would be neither oil nor energy. Dreams of shrinking to grow may end up staying merely first.