A new strategy has been introduced by BP that seeks to reshape its business as it pivots from being an international oil company focused on producing resources to an international energy company focused on delivering solutions for its customers.
The strategy is built around three focus areas of activity and three distinctive sources of differentiation, underpinned by a new sustainability frame and advocacy for policies that support net zero.
The focus areas are low carbon electricity and energy; convenience and mobility; and resilient and focused hydrocarbons. The three sources of differentiation to amplify value are integrated energy systems; partnering with countries, cities, and industries; digital and innovation.
Within 10 years, BP aims to have increased its annual low carbon investment to around $5 billion a year, building out an integrated portfolio of low carbon technologies, including renewables, bioenergy and early positions in hydrogen and CCUS. By 2030, the company aims to have developed around 50 GW of net renewable generating capacity and to have doubled its consumer interactions to 20 million a day.
Over the same period, BP’s oil and gas production is expected to reduce by at least one million BOE/day, or 40%, from 2019 levels. Its remaining hydrocarbon portfolio is expected to be more cost and carbon resilient.
By 2030, BP aims for emissions from its operations and those associated with the carbon in its upstream oil and gas production to be lower by 30-35% and 35-40% respectively.
BP has also set out a new financial frame to support a fundamental shift in how it allocates capital towards low carbon and other energy transition activities. The combination of strategy and financial frame is designed to provide a coherent investor proposition – introducing a balance between committed distributions, profitable growth and sustainable value – and create long-term value for company stakeholders.
“Energy markets are fundamentally changing, shifting towards low carbon, driven by societal expectations, technology and changes in consumer preferences,” Helge Lund, BP Chairman, said. “And in these transforming markets, BP can compete and create value, based on our skills, experience and relationships. We are confident that the decisions we have taken and the strategy we are setting out today are right for BP, for our shareholders, and for wider society.”
“We bring with us over 100 years of experience steeped in the world of energy,” Bernard Looney, BP CEO, said. “We understand energy markets deeply, and have developed unique capabilities in trading, marketing, technology and innovation. And we are not starting from scratch in this new world. From our Lightsource BP joint venture – now in 13 countries – to our electric vehicle charging partnership with DiDi in China, and our industry-leading convenience partnerships with M&S in the UK and REWE in Germany – we are already building scale and capability.”
“BP has set out ambitious targets for the realignment of its business within five and ten year time frames. An overhaul of this scale will require significant movements in the M&A market, if it is to be delivered in the targeted timeframe,” Will Scargill, Managing Oil & Gas Analyst at GlobalData, said as he offers his view on the transition.
“Among its growth plans for low-carbon energy sources, BP’s target for renewable power generation capacity is a big ask. Its most significant renewables interests, at present, come from its 50% stake in Lightsource BP, which targets 10 GW by 2023. To reach 20 GW by 2025 and 50 GW by 2030 will likely require significant acquisitions on top of the expansion of capital spending that BP has set out.”
“In terms of its traditional oil and gas segment, BP will need to offload assets that are not high-grade to hit its targets of improving returns on capital from a reduced asset base. It is following up its previous $15 billion divestment target with a target of $25 billion for the period 2020-2050. Assets most likely to be put on the market are legacy positions with little growth potential,” Mr Scargill concluded.