aAfter a “strong and competitive” hunt for a new chief executive, BP's board decided the best appointment was someone who had already sat on the board for three-and-a-half years and worked as a replacement. Since Bernard Rooney's acquittal in September last year.
No surprises there. BP has never appointed an external boss, and former chief financial officer Murray Auchincloss is a good candidate to continue. He has been with the company for his 25 years and is passionate about Loonies and chairman Helge Lund's strategy for an “orderly” transition to net zero by 2050 or sooner. After all, he put up numbers with his approach.
However, continuity is not important to everyone. Some investors may dislike that. They did not sign climate change activists' resolutions and the idea that BP's “transitional growth engines” such as wind turbines, hydrogen, biofuels and electric vehicle (EV) charging points could generate the same return on capital. These are the people who don't accept it. As a fossil fuel. They want oil companies to stick to producing oil and gas (and increasing dividends and stock buybacks) and leave the transition work to the experts.
Under Looney's watch, BP's stock traded persistently at a discount within the big oil club. In a post-COVID-19 world of high oil prices, oil-rich, cash-generating US companies Chevron and Exxon sit at the top of the valuation chart. BP also stands at a discount to Shell, which last year abandoned plans to cut oil production annually for the remainder of the decade. Mr. Looney's own adjustment was to reduce BP's hydrocarbon production reduction target from 40% to 25% by 2030, but the assessment gap did not close.
What does Auchincloss do? Well, I hope he does what he says and sticks to the plan. Old-timers in the oil industry must seek to demonstrate that it is possible to generate the same profits with energy other than fossil fuels. BP's pledge is that biofuels (gas and liquid) and EV charging points can produce 15% as much as oil over the entire cycle. If that can be accomplished, some of the doubts will disappear.
However, half the problem is long lead times. BP's transition assets could generate a peak profit of just $1.5 billion this year, a small number for a company of its size. Only in 2030, when related revenues are expected to reach $10 billion, may skeptics begin to have second thoughts. The only sure answer is to meet all goals along the way and avoid obvious economic misfortunes such as the US winds.
Looking through the other end of the transition telescope, we can also say that the pace of change in BP is slow. That's also true. Fossil fuels are still projected to account for 75% of the group's revenues by 2030. But within a deeply divided investor base, Auchincloss will mainly feel the heat from those who will be in the oil longer. Unfortunately, that's life. But continuity, even if it sounds bland, is a reasonable stance for BP's board under pressure to take at this time. His current strategy is three years old and he has no time in the energy business. You should be given a chance to succeed or fail.