The departure of BP CEO Bernard Looney is an unexpected disrupter for a company struggling to balance investment in oil and gas -- demanded by shareholders and spurred by oil price rises -- against pressures from society and governments to transition to low-carbon energy.
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It is still too early to assess the fallout from Looney's shock Sept. 12 resignation, stemming from undisclosed personal relationships at the company, with an internal investigation still underway.
Some may see the prospect of a "new broom" as an opportunity to accelerate change, perhaps in step with a UK government having second thoughts on energy transition targets such as the deadline for ending sales of new internal combustion engine cars.
Sceptics, however, take a dimmer view of the third unplanned departure of a BP CEO since 2007, and see the UK major, which was fully privatized in the 1980s, as increasingly vulnerable to a potential takeover.
"Losing Bernard Looney is another knock for a company that had serious challenges over the last 15 years," S&P Global Commodity Insights executive director of upstream equity research, Lysle Brinker, said.
Looney in his three-and-a-half year tenure made waves on important issues for the industry: he committed to a specific long-term cut in oil and gas output in the course of the transition to low carbon energy. And he was the first among his peers to declare a complete pull-out from Russia after the 2022 invasion of Ukraine -- albeit after nudging by government.
Investors did not warm to the production cut plan, questioning the economics of low-carbon investments; Looney was forced into retreat in February, forecasting a more modest cut in oil and gas production of 25% by 2030, rather than the 40% reduction announced earlier. He also committed an extra $8 billion to "fast-payback" oil and gas projects.
By contrast, Shell and TotalEnergies have been less explicit on long-term oil and gas output reductions, warning of a supply cliff edge. In Russia, TotalEnergies has retained its stake in Yamal LNG, citing contractual obligations in the absence of sanctions on Russian gas, as well as energy security needs.
BP may now have to offer reassurances, including in parts of the world where it has political significance. Chairman Helge Lund and ex-CEO John Browne both visited Azerbaijan in the last week for the centenary of late president Heydar Aliyev, father of the current president. The company operates Azerbaijan's ACG oil complex and the Shah Deniz gas field, and has been developing renewable energy plans for the Nagorno-Karabakh region and surrounding areas captured from Armenia-backed forces.
Closer to home, Looney won few friends among smaller operators in the North Sea with his seemingly relaxed attitude to government tax plans. His references to BP as a "cash machine" and seeming nonchalance over a planned windfall tax led some to refer to the subsequent Energy Profits Levy as the "Looney tax."
On some measures BP's upstream oil and gas business is in better shape than might be suggested by Looney's low-carbon zeal. While Europe's oil and gas majors play down the importance of production volumes, BP's production has been stable and even started to rise -- discounting its stake in Rosneft, which it has yet to formally divest.
In the first half of 2023, BP's oil and gas output rose 3% year on year, with full-year output expected to rise for a second year in a row. Production costs at multi-year lows "underpin the resilience" of BP's assets, S&P Global Ratings commented in February. Upstream operating costs were $5.94/b of oil equivalent in the first half.
BP benefits from a well-diversified portfolio, with the share of assets it operates itself among the highest in its peers. Thirteen years after the Macondo oil spill disaster, it has regained some of its standing in the US Gulf of Mexico, with new plans to develop high-pressure Paleogene fields. It is the only European major with a substantial US shale presence.
In the North Sea, senior vice president Doris Reiter on Sept. 5 said she was confident BP's production hubs would still "be around for the 2040s and 2050s," saying the "fundamentals" remained strong.
In the downstream, BP's refinery footprint was slimmed down under former CEO Bob Dudley, with a focus on the US and processing heavy Canadian crude at the 440,000 b/d Whiting refinery. Looney went on to sell BP's stake in the smaller Toledo refinery in Ohio, but in February said the company would keep the rest of its portfolio, as it raised its refining marker margin assumption by around $2/b to $14/b out to 2030. S&P Global Commodity Insights forecasts only a slight decline in US oil product demand in the next decade.
However, BP faces questions over its US-focused strategy and energy transition plans, Brinker says. He concedes BP's Gulf of Mexico fields are among its "remaining choice assets," but points to high costs associated with the US deepwater as the reason for Chevron and ExxonMobil shifting focus to locations such as Guyana and Brazil. BP's shale acreage is also likely less favorable than the US giants' low- or zero-royalty assets, he adds.
On the energy transition, Looney had rejected claims BP was backing away from low-carbon investment, earmarking $55 billion-$65 billion for "transition growth engines" -- EV charging, biofuels, hydrogen, wind and solar.
But Brinker notes poor renewables returns are causing Shell, under new CEO Wael Sawan, to reassess its strategy. He adds the two UK majors have yet to prove the case for their sizable US retail presence, when Chevron and ExxonMobil have largely pulled out.
Overall, Brinker associates BP with greater instability than its peers, seen in its volatile cash flows, and successive dramas, from the Gulf of Mexico spill, to Russia. "BP continues to be the most challenged of the [majors] and therefore the least likely to survive intact this decade," he said.