Did Activist Fund Strategy Work? BP to Increase Oil Investments

[Image source=Reuters Yonhap News]

BP, the largest oil company in the UK attempting to transition into a clean energy supplier, has reported strong earnings while also increasing fossil fuel energy production. BP stated that it will continue to increase investments not only in clean energy but also in fossil fuel energy. There is an assessment that the strategy of activist hedge funds pressuring BP to abandon its eco-friendly policies has been effective.

On the 6th (local time), BP announced that it recorded a profit of $3 billion in the fourth quarter of last year, surpassing market expectations of $2.8 billion. The total profit for last year reached $13.8 billion. Although this is half of the total revenue of $27.7 billion in 2022, when oil and natural gas prices surged due to Russia's invasion of Ukraine, it is the second-highest profit since 2012.

It is analyzed that the increase of 2.6% in BP’s core oil and gas production last year was a key factor. The supply of liquefied natural gas (LNG), a cooled compressed fuel, increased by more than 20%. According to BP, oil and gas prices last year were about 20% lower than the previous year but still remained high compared to the 10-year average price.

BP has a climate crisis response strategy to reduce oil and gas production by 25% by 2030 compared to 2019. When Bernard Looney, then CEO of BP, declared this in 2020, the plan was to reduce production by 40%, but due to unexpected variables such as fossil energy supply shortages and price surges, the target was lowered once last year.

BP faces the challenge of balancing between investors seeking carbon emission reduction targets and profitability. On the 29th of last month, BP was also asked by the activist hedge fund Bluebell Capital Partners to withdraw its promise to reduce oil and gas production and transition into a clean energy supplier. This demand was made because BP’s stock price fell while competitors like ExxonMobil and Shell saw their stock prices rise due to improved refining margins from soaring energy prices. BP also recorded a loss of $1.1 billion last year from investments in offshore wind projects on the US East Coast.

Murray Auchincloss, who took office as BP CEO last month, explained the reason BP is trying to transition into an integrated energy company despite this, saying “To avoid losing control over prices later, we are investing in five clean energy transition businesses (biofuels, convenience, charging, renewables, and hydrogen).”

However, the market paid attention to CEO Auchincloss’s remarks that the oil and gas production targets could change. He emphasized, “We don’t know how much that amount will be in 10 years,” and “What matters most is value.” He also said that while the clean energy business will be maintained, the pace of investment in each unit will be flexible depending on demand and potential returns. This was interpreted as a signal that he will take a more profit-oriented approach than his predecessor, CEO Looney. Meanwhile, BP’s stock, listed on the London Stock Exchange, closed up 4.6% that day amid a combination of positive factors.

This content was produced with the assistance of AI translation services.