Activists arrive to shake up BP

Nearly 50 institutional investors have called on BP to give shareholders a vote on climate goals, as the company comes under pressure to unveil a "fundamental reset” next week.

So what? BP is suffering from whiplash. At the start of 2020 the oil major embarked on a controlled experiment, unprecedented in scale, to transform a brown company into a semi-green one. Since then, board directors, shareholders and staff have been conflicted about the strategy first implemented by ex-CEO Bernard Looney. Opinions differ on whether it was

• a prescient attempt to diversify away from volatile fossil fuels at a time when the world was reeling from the consecutive energy shocks of Covid and Ukraine;
• a misjudged foray into a non-core business that bloated the company’s debts and cost base; and/or
• a posture chiefly adopted for PR reasons.

IBM or Kodak? The decision to cut BP’s oil and gas production by 40 per cent and build 50 gigawatts of renewables by 2030 was admirable – and isolating.

BP was to become an "integrated energy company”, harnessing new technology to jump the gun on peers whose assets risked being “stranded” as the world weaned itself off fossil fuels. But that diversion in strategy mirrored a diversion in the share price. In the past five years, BP’s stock is down 20 per cent compared with gains of between 10 and 70 per cent for its rivals Shell, Total and Exxon. Markets simply didn’t approve.

The other missing ingredient? Conviction. Directors were constantly reviewing Looney’s strategy, according to a source familiar with their thinking. Robust discussions took place but many couldn’t shake a feeling of “apprehension”.

Split and stuck. Under the leadership of Helge Lund, the Norwegian chair who hired ex-colleagues from McKinsey to help with the refresh, a split board continued to stand by management. Looney was appointed from within BP’s ranks with the express task of launching a new strategy (and in lieu of Tufan Erginbilgiç, who went on to successfully boost Rolls Royce). Binning the strategy would have meant binning BP’s friendly face.

Some argue the full-throated and very public strategy shift was overdone. “Helge just does not deserve the bad rap,” says one source. “My view of what happened at the outset is that the head of strategy built a team that so embedded themselves with NGOs and other stakeholders that it made it twice as hard [as] it would have been otherwise to make an adjustment.”

Getting personal. By 2022, speculation over strategy was compounded by revelations about Looney’s tangled private life. Allegations emerged about relationships with multiple senior colleagues and the board was split again. The CEO’s relationship with Lund reportedly deteriorated, and when further allegations emerged that he had ​​misled BP’s directors by not being “fully transparent”, he had little choice but to resign. Murray Auchincloss, Looney’s CFO and accomplice in the strategy, took over and began cutting costs.

Enter Elliott. Auchincloss’s task was never going to be easy. But it became a whole lot harder after Elliott Management built a 5 per cent stake in BP. The activist hedge fund has a reputation for ugly tactics and picking fights with the likes of

• Southwest Airlines, where it launched a proxy fight last year that culminated in half the board resigning;
• Starbucks, where it successfully ousted the CEO; and
• Argentina, which it engaged in a 15-year legal battle over unpaid debts before settling for a $2 billion payout.

Elliott evidently believes BP’s constituent parts are worth more than its £75 billion valuation. Goldman Sachs sees $26 billion of potential divestitures to help cut debt, and it’s likely some will be announced next week. Depending on how many wind turbines are sold off, this could mean the end of BP’s bold eco-experiment.

What’s more… Last week staff at Elliott’s headquarters in New York wore T-shirts with “Gulf of America” printed on them – a nod to BP choosing to reference the “Gulf of America oil spill” in its annual results. Feels like: a company confused about its identity.