Bernard Looney knew he had more than one audience to please as he unveiled BP’s earnings against a backdrop of rising energy costs.
While City analysts cheered annual profits of $13bn [£10bn] and a share buyback on Tuesday, politicians and campaigners were calling for a slice of BP’s profits to ease the pain of higher gas prices for millions of British households.
Heading off growing calls for a windfall tax on gas producers, the chief executive pledged that a chunk of BP’s cash would flow back to Britain via investment into the energy sector – predominantly away from oil and into green.
“For every pound we make in the UK this decade, we will invest more than two pounds into the UK this decade,” Looney said.
“The vast majority of that investment will be into the energy transition, offshore wind in Scotland, offshore wind in the Irish sea, hydrogen power, our charging network.. The list goes on and on…”
His comments come as billions of pounds worth of investment are needed across the energy sector in the UK and around the world to help cut carbon emissions while still sustaining economic growth.
In the UK, a fourfold increase in wholesale natural gas prices is set to trigger a 54pc increase in household energy bills from April, heaping financial stress on millions.
As BP shifts towards renewable energy, many shareholders are keen for strong returns delivered by oil and gas to be maintained, which have helped sustain pension funds for decades.
How well Looney and his peers at the top of global energy companies navigate those demands will help determine their company’s longevity, and the pace of shift towards cleaner energy globally.
Finance chief Murray Auchincloss was in a bullish mood as the firm accelerated its plans to diversify away from oil and gas and cut carbon emissions. “That’s confidence in the transition,” he said. “It makes total sense to us, given the amount of progress that we’ve made over the past two years.”
BP is one of the biggest energy investors in the UK with six oil and gas fields in the North Sea, plans to build major wind farms off the coast of Scotland and in the Irish Sea, and a hydrogen plant in Teesside.
Giants such as BP have, however, been lowering their focus on the declining North Sea basin in recent years. Overall investment in the basin has fallen starkly from £16.3bn to £3.7bn between 2014 and 2020, industry figures show, despite smaller players arriving in their wake.
For reasons including occasional price crashes, investment in the global natural gas projects has fallen over the last decade to hit a record low of $100bn in 2020, according to the International Energy Agency.
At a global level, that lower investment, along with countries trying to switch away from coal and oil but not yet having built enough in renewables, is one reason for the gas supply crunch of recent months that has driven prices so high.
“If we had invested in insulating western and northern European housing stock, building much more in the way of low carbon electricity, and getting a really big acceleration in the take-up of heat pumps, we would not nearly be so dependent upon natural gas,” says Nick Stansbury, head of climate solutions at Legal and General Investment Management.
The Government is now trying to encourage investment in both renewables and natural gas production – despite critics arguing the UK would still be tied to volatile global gas prices even with higher production.
Chancellor Rishi Sunak asked for licences for six North Sea oil and gas licences to be fast-tracked, The Telegraph reported on Tuesday.
Auchincloss said any government moves to help underpin investment in all types of energy were welcome, as he pushed back on the prospect of a windfall tax.
“My encouragement would be to incentivise investment as opposed to disincentivise investment,” he said. “It’s not something that would impact a company like BP – we tend to see through these cycles – but implementing a windfall profits tax on some of the small producers in the UK will be pretty difficult. I don’t think that’ll increase the amount of production.”
Vicky Parker, partner and power and utilities lead at PwC, notes there is a huge amount of cash ready to be invested in renewable energy projects, by both oil majors and infrastructure funds, but not always enough projects. “Some of that is just around the complexity of building some of these projects,” she says.
Despite its plans to transition, BP’s investment this year will be focused on fossil fuels, with $9bn ploughed into oil and gas production and refineries, $1bn into biorefineries, $2-$3bn into petrol stations and car chargers, and $2-$3bn into renewables and other low carbon products.
Investment in its “transition growth” business, which includes bioenergy, BP forecourt stores, electric vehicle charging and hydrogen, will grow to 50pc by 2030, with the company believing it can generate $9-$10bn of profit from those businesses by 2030.
After almost two years in charge, Looney is slowly winning investors over to his strategy. Analysts at Barclays highlighted the positive $9-10bn profit target, although analysts at Citi warned over investors’ patience to wait for that to be reached.
Bruce Duguid, head of stewardship for EOS at Federated Hermes and part of the Climate Action 100+ coalition of shareholders pushing companies on climate change, welcomed BP’s new net zero ambition, but cautioned it needed to scrutinise the details.
Not included in its climate plans is its 19.8pc stake in the Russian state oil giant Rosneft, which could also become a major source of tension if Russia invades Ukraine and faces fresh sanctions.
For Looney, he was in a philosophical mood when asked by analysts about the risk: “The thing I’ve learned in my life is don’t worry about things until they happen and who knows what’s going to happen.”
Given what’s at stake, investors and politicians are no doubt pleased to see his strategy for the overall business is a bit clearer.
