Major changes are coming at BP PLC. Aside from ambitious new climate goals, the integrated major intends to move away from the traditional oil business model and overhaul its corporate structure in what some analysts have called a "radical" change.
BP's Feb. 12 announcement was light on specifics, but most notably, the company said it will combine its upstream unit with its downstream and chemicals segments into one — production and operations. The new structure will include three other units: customers and products, gas and low-carbon energy, and innovation and engineering.
"The planned reorganization appears to be quite radical, and we await further details on the implications of this," Berenberg analyst Henry Tarr said in a Feb. 12 research note. "At this stage, it is equally hard to know whether the planned reorganization can drive positive change through the company or a re-rating of the stock."
As part of its gas and low-carbon energy segment, BP will continue to ramp up spending on renewables and non-oil technologies as it plans to cut greenhouse gas emissions across its operations to net-zero by 2050 or sooner.
"Over time, as investment goes up in low and no carbon, we see it going down in oil and gas," new CEO Bernard Looney said during a special call Feb. 12. "You can expect oil and gas production to decline gradually over time."
Tarr said BP's deeper climate goals "could require the divestment or winding down of much of the upstream business."
Carbon in the oil and gas BP produces is equivalent to roughly 360 million tonnes of carbon dioxide equivalent per year.
By splitting out its retail and gas and low-carbon energy units, "the company is likely hoping to showcase its less cyclical and more [environmental, social and governance]-friendly elements, allowing investors to value them separately," Tarr said.
Joining the ranks of Royal Dutch Shell PLC and Repsol SA, which have set goals to tackle scope 3 emissions, BP said that by 2050, it will halve the carbon intensity of the emissions from the oil it extracts and sells.
The massive changes were announced amid a wave of executive shakeups at BP. Looney, former head of the company's upstream business, just assumed the reins from Bob Dudley, who recently retired as CEO.
BP CFO Brian Gilvary will also retire at midyear, and the chief executive of the company's downstream segment, Tufan Erginbilgic, will leave at the end of March.
"We have got to change and change profoundly," Looney said during the call, highlighting a need to "reinvent" BP to meet the goals of the Paris Agreement on climate change.
After the company's "Beyond Petroleum" branding and an expansion into renewables in the 2000s never really picked up the steam, the London-based oil major, like many of its peers, has been making equity investments in renewables in recent years, growing its non-oil businesses to help reduce its operational carbon footprint in response to a push from investors for large energy companies to take more serious action on climate change.
"The new emissions targets are an improvement, but more clarity is required," Credit Suisse said in a Feb. 12 research note to clients.
Looney said the company will offer specific emissions reduction targets and will explain how it will work to achieve them in September when it holds its strategy update/investor day.
"This marks a major turnaround in BP's position. Just 12 months ago former CEO Dudley said the company could not be held accountable for how people use its products. Looney is taking the company in a very different direction," Wood Mackenzie Vice President of Corporate Analysis Luke Parker said in a Feb. 12 statement.
BP previously set short-term emission targets for scope 1 and scope 2 emissions, which are those that come from the electricity a company purchases and uses. BP's prior target was to reduce scope 1 and 2 emissions from its own operations by 3.5 million tonnes to net-zero by 2025.