BP boss Bernard Looney started eight months ago with a trinity of soundbites: reimagining energy, reinventing BP, and performing while transforming.
Covid-19 and the oil price crash could not sway the oil man from the first two. He has set out one of the most ambitious shifts to renewable energy of any oil major. Ten thousand jobs are going as part of a wide-ranging reorganisation. But the third limb of Mr Looney’s strategy has proved more precarious. BP recorded a $6.7bn underlying loss in the second quarter after taking huge writedowns on the value of exploration assets. Transforming perhaps, performing not so much.
Mr Looney hailed Tuesday’s third-quarter earnings as proof the group was living up to the slogan. Underlying replacement cost profit for the quarter was $86m rather than the $120m loss analysts had expected as both BP’s upstream and downstream divisions outperformed. Adjusted operating profits of $1.24bn were double the consensus estimate. Cash flow was better than anticipated too.
After eight months of turmoil, a dividend cut and Big Picture strategising, the results were an exercise in reassurance. Buybacks could be back in the frame as early as the final quarter of next year, once net debt falls below $35bn from $40bn-plus now. Oil and gas will be the “engine” of BP’s transformation. There will be no fire sale of assets to meet targets.
In reality, it is far too early to tell whether BP is performing in the way that matters, just as it is too early to tell whether it is transforming.
It is cutting costs as it said it would, selling non-core assets as it said it would, and with last month’s $1.1bn acquisition of a stake in two offshore wind projects, investing in renewables as it said it would.
But the doubt investors feel about its strategic shift and the ability of its low carbon division to deliver returns is evident in BP’s share price, down almost 60 per cent so far this year. For most of 2020 it had outperformed rival Shell. That gap has closed, not widened, since BP gave investors more detail on its reinvention plans last month. Orsted, the Danish wind farm developer and an earlier adopter of renewables, has overtaken BP by market capitalisation in recent weeks.
BP’s new strategy is sensible. Whether it can pull it off is debatable. But whatever Mr Looney says, investors are no closer to knowing whether BP can really perform or transform.