BP: really going “beyond petroleum” won't be easy

BP is recovering and plans to become carbon neutral by 2050. Meanwhile, activist investors are targeting ExxonMobil. Matthew Partridge reports

Offshore oilrig
Will BP thrive as the sun sets on oil?
(Image credit: © BP plc)

Following one of its “worst years on record” oil giant BP is gaining confidence. It plans to boost returns to shareholders after “higher oil prices and strong trading results buoyed its first-quarter earnings”, says Sarah MacFarlane in The Wall Street Journal. It made a profit of $3.32bn in the first three months of 2021, compared with a loss of $628m a year earlier. Having sold assets to cut net debt to $33bn from $39bn in the previous quarter, BP said it would buy back $500m of shares in the second quarter.

The reported profits were boosted by a $1bn gain on the sale of a stake in an Omani gas field, says Emily Gosden in The Times. However, even if you remove this gain and other “one-off factors”, underlying profits still more than tripled and were “well ahead” of analyst forecasts. BP’s CEO Bernard Looney believes that the “strong result” reflects two main factors. First, higher average oil prices of $61 a barrel, compared with $50 in the first quarter of 2020, have boosted margins. Cutting costs and trimming capital expenditure helped too.

Going green won’t be easy for BP

BP’s management hopes that the windfall will satisfy short-term pressure from shareholders, says Jillian Ambrose in The Guardian. However, the stock’s relatively low valuation suggests the market still needs to be convinced that BP will be able to make renewable energy and clean-burning fuels as profitable as its existing business. Analysts believe that it will “take many years” for BP’s low-carbon businesses to reach “sufficient scale” to convince investors of its financial potential and to compensate for the expected cuts of 40% to oil and gas production that will be necessary for BP to achieve its plan “to become a carbon-neutral company by 2050”.

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Still, the oil companies sticking with fossil fuels are facing problems of their own, says Kevin Crowley on Bloomberg. Unlike BP, the US energy giant ExxonMobil insists that oil and gas have a “profitable future for decades to come” and has “resisted publishing a mid-century net zero emissions target”. However, it is currently locked in a “rare proxy battle” with an activist hedge fund, Engine No. 1, which thinks that ExxonMobil’s strategy “fails to meet the needs of the energy transition” and is therefore trying to overhaul the board of directors. Although the fund only owns 0.2% of the company, it has already won the support of several large stakeholders.

The conflict, likely to be one of “the most-watched US shareholder proxy battles in years”, is primarily focused on whether ExxonMobil faces an “existential business risk” by “pinning its future on fossil fuels”, say Derek Brower and Justin Jacobs in the Financial Times. However, it comes at a time when shareholders are irritated with ExxonMobil’s general performance after years of “heavy spending and mounting debts”. Last year Exxon wrote off $20bn of assets, recorded four straight quarterly losses and was “booted” out of the Dow Jones index.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri