Investors are warming to BP's radical shift of strategy away from oil and gas with a growing acceptance that the energy major can deliver on its plans to profitably scale up its renewable energy businesses, BP's CEO Bernard Looney said May 19.
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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.
Market reaction to the move was initially mixed, Looney said, noting that investors had been "trying to digest the strategy". But since 2021, Looney said he had seen growing interest in BP's new direction with investors now more informed on how the company plans to unlock value from the clean energy shift.
"There is, what I would call, a growing acceptance and actually a growing interest in the strategy that I couldn't probably have said four or five months ago. So, I sit here today in a world where I'm optimistic about shareholders buying the strategy," Looney told the Columbia Global Energy Summit event.
The "unprecedented jump" in global low carbon spending pledges and a greater focus on hitting net-zero carbon emissions since the 2020 pandemic also "plays right into" BP's new strategy, he said.
BP shares have risen about 24% in the year to date, ahead of most rivals apart from Spain's Repsol and Norway's Equinor.
Looney referenced a report by UK bank Barclays this week that ranks BP as the bank's top pick of the energy majors sector "because they felt that there was massive value potential here."
In the report, Barclays analysts said BP has the "most misunderstood" investment case of all the large-cap oil and gas companies, adding that its portfolio high-grading and cost savings more than offset the expected fall in oil and gas volumes.
Noting BP's better-than-expected first-quarter earnings, Looney said he believes the company's deep cost-cutting and new direction has given investors more confidence in the long-term performance of the company despite its falling exposure to oil and gas markets.
"I think we're in a bit of a groove now 12 months in. The company is performing and at the same time step by step transitioning the company," he said.
Looney reiterated that BP continues to target competitive cash returns during its pivot to cleaner energy with stable shareholder dividends as the world emerges from the pandemic. The energy transition business, including wind power, hydrogen, and electric vehicle charging are expected to generate stable returns of 8%-10% "for decades and decades with no decline curves."