BP pivoting back to oil & gas and cutting transition spending by $5B in reset strategy

U.K.-headquartered energy giant BP has introduced what it calls a “fundamentally reset” strategy focusing on more investments in the oil and gas sector and limiting those related to energy transition.

According to the UK player, the new strategy entails increasing its upstream oil and gas business, focusing its downstream business, and investing with what it describes as increasing discipline in the transition. The aim is to strengthen its balance sheet, increase efficiency, and support higher returns.

Seen as controversial by some, this move is thought to result from shareholders’ opposition to BP’s net zero strategy given the amount of time it takes to bring these projects online, among other reasons. This is also why the UK major decided to downsize its workforce last month.

BP’s Chief Executive Officer, Murray Auchincloss, said: “Today we have fundamentally reset BP’s strategy. We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency. This is all in service of sustainably growing cash flow and returns.“

Based on the new strategy, annual investments in oil and gas are set to increase by around $10 billion, paired with an enhanced portfolio thanks to access to discovered resources. Production is expected to grow to 2.3-2.5 mmboed in 2030, with a possible further capacity increase by 2035.

“We will grow upstream investment and production to allow us to produce high margin energy for years to come. We will focus our downstream on markets where we have leading integrated positions. And we will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset BP, with an unwavering focus on growing long-term shareholder value,” added Auchincloss.

Ten new major oil and gas projects are planned to start up by the end of 2027, with an additional 8 to 10 by the end of 2030. A reserves replacement ratio of 100% is aimed by the end of 2027, when the UK major hopes to increase upstream cash flow by around $2 billion.

Capital expenditure will be reallocated to higher growth by increasing oil and gas investment and decreasing transition investment to $1.5-2 billion per year, which the company says is $5 billion lower than previous targets. The firm also wants to “significantly” reduce structural costs, by $4-5 billion until the end of 2027.

When it comes to transition-related projects, investment in biogas, biofuels, and EV charging will be focused, while growing top-tier offshore wind and solar platforms will be done in a “capital-light” way. Additionally, further projects in hydrogen and carbon capture will be limited.

Helge Lund, BP’s chair, noted: “Over the past 12 months, we have worked closely with Murray and his team as they have developed the new direction, ensuring it reflects the significant changes we have seen in energy markets and our purpose of delivering energy to the world today and tomorrow. This new direction places free cash flow growth, returns and value at its heart.”

As for sustainability goals, BP says it has reduced scope 1 and scope 2 emissions within its operational control by around 38% against its 2019 baseline beyond its target of 20% in 2025 – and embedded sustainability into several key areas and management processes.  

Its 2030 aim is now to cut operational emissions between 45 and 50% against the 2019 baseline. Sustainability aims will be focused on those most relevant to the long-term success of its businesses and its net zero ambition.

The new strategy comes on the heels of speculation over BP’s potential merger with Shell. While this is not the first time such rumors started circulating, it comes at a time when BP has been experiencing a prolonged spell of lower profit and investor frustration.