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Bernard Looney’s short tenure at the top of BP will now always be associated with his failure to disclose the extent of past personal relationships with colleagues. The oil man, who resigned late on Tuesday, is the third BP chief executive to exit prematurely since May 2007. Despite this, he deserves credit for forcing BP to face up to the energy transition.
This has been no easy effort. The International Energy Agency may expect demand for fossil fuels to peak before 2030. But the market has not rewarded BP for its efforts to invest in cleaner fuels. After an enthusiastic start to his tenure in February 2020, when he set out net zero plans, BP’s share price performance of 14.5 per cent including dividends has trailed that of its largest peers.
Early this year, Looney appeared to shift away from his environmental commitments. Plans to scale back oil and gas production cuts by 2030 went down badly with climate activists. Yet BP needed to achieve better investment returns from its spending on cleaner technologies. Investments in transition fuels such as biogas — BP bought Archaea for a hefty $4.1bn in December — offer higher returns than headline grabbing wind farm projects.
Thoughts will now turn to succession. Note that BP’s board had fully backed Looney’s strategy. His charisma smoothed its shift to cleaner technologies — even if it will remain 75 per cent fossil fuel dependent at the decade’s end. Someone equally politically agile is required to execute this plan. Transition investments will provide a quarter of BP earnings by 2030, according to Citi.
There will not be any concern about finances. Appointing chief financial officer Murray Auchincloss as interim CEO says something about the board’s confidence on this front. Free cash flow should average $16bn annually in 2023-2025, according to Visible Alpha. BP does carry slightly more total debt relative to its capital compared with Shell and TotalEnergies. A bit more leverage has helped boost BP’s shares sharply as the Brent oil price has climbed by more than a fifth since June.
BP’s shift towards biogas, hydrogen and electric vehicle charging are backed by government policies and have decent barriers to entry. The oil major needs another long-serving boss, similar to Looney’s predecessor Bob Dudley, to ensure its transition stays on track.
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