Bernard Looney is betting BP’s house on his green energy ambitions. Besides cutting the dividend to free up cash for renewable investment, the chief executive of what is still essentially a 61 billion pound oil and gas company plans to reduce hydrocarbon production by 40% over the next decade.
The reinforced strategic commitment comes at a tough time for the current business. The chain of virus, lockdowns, falling demand and falling prices made Tuesday’s dividend cut, BP’s first in a decade, almost inevitable. Investors, who had pushed the yield on the shares above 8%, against the sector’s 5% average, were not surprised. Indeed, they were pleased. BP shares climbed 7%.
The $4 billion of cash conserved by the dividend cut will help Looney with the easy part of his mission. With net debt now at $41 billion, roughly double this year’s expected EBITDA, he is within comfortable striking distance of a net debt target of $35 billion.
Changing BP into a successful green energy company will be a lot harder. The plan starts with shrinking the old. A mix of asset sales and curbs on new exploration is supposed to cut BP’s hydrocarbon output by nearly half by 2030.
Then there is growing the new. Some of the money not spent on oil and gas will go towards a tenfold increase in green energy investment over the decade, to $5 billion a year. That is roughly a third of forecast annual capital expenditure over the next five years. Tangible targets include 70,000 electric vehicle charging points and 50 gigawatts of renewable power capacity.
The cultural U-turn required to shift a company that has spent the last century immersed in hydrocarbons will be difficult. And BP is late to the game. Denmark’s Orsted, the world’s biggest wind-power producer now worth $60 billion, ditched oil and gas completely three years ago.
If his low-carbon punts fail to pay off, Looney and his successors could end up presiding over an outfit that is neither oil nor energy major. Dreams of shrinking to grow can end up as merely shrinking.