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BP shareholders expect oil group to scale back climate target

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Shareholders in BP are preparing for the company to scale back its climate targets further after a shift in tone from the oil major’s new chief executive.

BP is alone among its peers in committing to cut oil and gas production, setting a target in 2023 of producing 2mn barrels of oil equivalent by the end of the decade, a 25 per cent reduction from 2019 levels.

The target has already been pared back once, from a 40 per cent cut announced in 2020, but shareholders believe that Murray Auchincloss, who took over from Bernard Looney as chief executive in January, is prepared to be more flexible as demand for oil and gas continues to grow.

“Do we think BP is going to change their guidance on oil production? Yes, we do,” said one top-10 shareholder. But, they added, “we’re not sure this is the right thing to focus attention on . . . precisely how many barrels of oil BP is going to produce”.

The shareholder said the shift was “partly a response to market pricing” — the war in Ukraine inflated oil prices, while a higher interest rate environment has hurt the profitability of renewables projects.

“Murray is saying outwardly that there’s no change but behind the scenes he’s being a lot more pragmatic, returns-focused and hard-nosed about it,” another investor said. “We’d all love them to build more in renewables but from a shareholder point of view, returns are not there.”

Another investor said they would “not be surprised if they decided they had been too ambitious and moved more in line with their peers and not cut oil and gas production as much as they initially said they would.”

This investor added: “Since Russia’s invasion of Ukraine, [oil companies] are seen as providing countries with energy security rather than being terrible companies polluting the world — and they have used that to their advantage.”

Any decision by Auchincloss to weaken BP’s climate pledges would mark a significant pivot away from the green strategy of Looney, who quit the FTSE 100 group in September after failing to disclose past relationships with company colleagues.

Auchincloss, who served as Looney’s chief financial officer, has previously said that BP will “pragmatically adapt” to future changes in energy demand.

Analysts also pointed to comments he made in February that while BP has a 2mn barrel per day target, decisions about which projects to proceed with over the next two years “will really determine that.”

Auchincloss had added: “So as we get through 2024 and 2025 and decide those, then we’ll update you in due course about what 2030 really looks like.”

BP declined to comment on whether it would continue to scale back its production target.

One analyst who covers BP said there had been a very different tone from the company during a capital markets day last October, when the oil group took investors on a field trip to the Permian basin in Texas. “It was very old school,” they noted.

Meanwhile an activist investor, Bluebell Capital Partners, wrote to BP’s board in March, alleging that its management had suggested to “multiple shareholders” that it might pump more oil and gas than planned.

“If, as we understand correctly from our conversations with fellow shareholders, BP’s management is hinting to shareholders during meetings that they might increase their oil and gas production above the 2mn barrels of oil equivalent a day targeted by 2030, then this should be reflected in BP’s official communication and targets,” Bluebell wrote in a letter, seen by the Financial Times.

The letter did not identify which shareholders BP had allegedly briefed.

BP disputed Bluebell’s account, saying it had “engaged extensively” with its shareholders and received “clear and widespread support” for its strategy. “Based on these engagements, we neither recognise Bluebell’s assertions nor have we heard support for their proposals,” it said.

Last year, Bluebell called on BP to increase its production target to 2.5mn b/d of oil equivalent by 2030, arguing that it was destroying shareholder value by moving away from hydrocarbons faster than society.

The top-10 investor said that while so far the market had not rewarded BP for its energy transition strategy, ultimately the oil group’s approach would lead to better financial results and be reflected in its share price.

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