BP's Looney touts oil price resilience under energy transition strategy

BP's core cash generation from its oil and gas business will remain resilient to oil prices below current levels in the coming years even as the company moves away from fossil fuels to renewable energy, CEO Bernard Looney said June 22.

Although current oil prices of around $75/b are sustainable over the coming years, BP's accelerated push for "value over volume" in its upstream business, means it shrinking production will create more earnings per barrel, Looney said.

Europe's number two oil company unveiled its major pivot to low carbon energy in August 2020, announcing that spending on renewables and bioenergy would jump tenfold to around $5 billion/year by 2030. BP also said its oil and gas production will fall 40% by 2030 as it shifts to cleaner energy and becomes a net-zero emitter.

"I think there's a very strong possibility that these prices will sustain over the coming years, and if they do, that's very good for our strategy," Looney said at the Global Energy Transition 2021 event. "What we're concentrating on is on quality. We want to run the best hydrocarbons business possible, we don't want to run the biggest hydrocarbons business possible. I think that's what got the industry in a lot of trouble over the past several years," he said.

Looney said BP remains focussed on so-called portfolio 'high-grading, referring to a practice of selling off higher-cost production and resources to focus on its more profitable barrels.

BP is aiming to deliver growing returns on investment (ROACE) of 12%-14% in 2025, up from 8.9% in 2019, based on a $50-$60/b oil price. Further out, BP expects a range of returns by 2030 from 8%-10% in its low-carbon electricity and energy business to 12%-14% in oil and gas and up to 20% from its fuel-based retail and mobility operations.

Upstream project approvals

Looney also said he believes BP's energy transition plan is "aligned" with the International Energy Agency's recent net-zero report which sets out a pathway to global net-zero emissions by 2050. Under the scenario, the world does not require any new oil or gas developments to be approved as global production would drop by 76% by 2050. Global oil prices are also seen sliding to $25/b by 2050. Looney said, however, that BP still intends to sanction new upstream projects in the coming years.

"Hydrocarbons remain core to our strategy, we'll make sure that they're the best quality that they have the lowest environmental impact, but that is consistent with our strategy," he said.

BP announced in early 2020 ambitious targets to become a net-zero carbon emitter by 2050 or sooner, a goal that does not rely on carbon offsets such as planting trees.