BP Abandons Oil and Gas Output Target

By Ron Bousso
LONDON (Reuters) – BP (NYSE:BP) has abandoned its goal of cutting oil and gas output by 2030 as CEO Murray Auchincloss re-evaluates the company’s energy transition strategy to restore investor confidence, according to three sources familiar with the matter.

Initially, BP’s ambitious plan, unveiled in 2020, aimed for a 40% reduction in output while rapidly expanding renewables by 2030. In February of last year, the target was revised to a 25% reduction, keeping production at 2 million barrels per day by the decade’s end, as investors shifted focus to short-term returns.

BP is now pursuing new investments in the Middle East and the Gulf of Mexico to increase its oil and gas output, the sources disclosed.

Auchincloss, who became CEO in January, has faced challenges in halting a decline in BP’s share price, which has lagged behind competitors this year as shareholders express doubts about the company’s profitability under the current strategy.

The 54-year-old CEO, formerly BP’s finance chief, aims to differentiate his strategy from that of predecessor Bernard Looney, who was fired for dishonesty regarding workplace relationships. Auchincloss’s strategy emphasizes immediate returns and investing in more lucrative ventures, particularly in oil and gas, while still targeting net zero emissions by 2050.

“As Murray said at the start of the year… the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company,” a BP spokesperson commented.

Auchincloss is expected to outline his revised strategy, which will exclude the 2030 production target, during an investor day in February, although sources indicate BP has already moved away from that goal. It remains uncertain whether BP will issue new production guidance.

Similarly, rival Shell (LON:SHEL) has also moderated its energy transition agenda under CEO Wael Sawan, divesting from power and renewable sectors and halting projects like offshore wind, biofuels, and hydrogen.

Both companies’ shifts in strategy come amidst renewed attention on European energy security following the upheaval caused by Russia’s invasion of Ukraine in early 2022.

Since 2020, BP has invested significantly in low-carbon ventures while concurrently reducing its oil and gas exploration team. Nonetheless, increased costs, interest rates, and supply chain complications have placed additional challenges on the profitability of renewable projects.

A source indicated that while competitors invested in oil and gas, BP had neglected exploration over recent years.

BACK TO THE MIDDLE EAST

Currently, BP is negotiating investments in three new projects in Iraq, including one at the Majnoon field. The company holds a 50% stake in a joint venture operating the substantial Rumaila oilfield in southern Iraq, where it has been active for a century.

In August, BP signed an agreement with the Iraqi government to advance the Kirkuk oilfield in northern Iraq, which encompasses the development of power plants and solar energy capacity. Unlike the historical contracts that offered minimal profit margins to foreign firms, the new agreements are projected to provide a more favorable profit-sharing model.

Moreover, BP is contemplating investments in the revitalization of oil fields in Kuwait.

In the Gulf of Mexico, BP is moving forward with the Kaskida development and plans to greenlight the Tiber field development, while also considering asset acquisition in the active Permian shale basin to enhance its onshore business in the U.S., which has seen reserves increase by over 2 billion barrels since its acquisition in 2019.

Having announced a $2 billion cost-saving initiative by the end of 2026, Auchincloss has recently paused investments in new offshore wind and biofuel projects, cutting the number of low-carbon hydrogen initiatives from 30 down to 10.

Despite these cuts, BP has acquired the remaining 50% of its solar power joint venture, Lightsource BP, and a 50% share in its Brazilian biofuel venture, Bunge (NYSE:BG).