As Murray Auchincloss addressed BP colleagues on a hastily arranged video call this week, the finance chief tried his best to remain calm.
“The fundamentals have not changed,” the Canadian insisted, just hours after his former boss Bernard Looney announced his shock resignation.
Auchincloss may believe it, but many others in the industry consider Looney’s departure nothing less than an earthquake.
Looney, 53, was the driving force behind BP’s recent strategy shift to go green. He took great interest in work and was seen as a great communicator even by his opponents.
His downfall came swiftly on Tuesday, when he was found to have hidden a workplace romance from the board, despite previously assuring that everything had been declared last year.
In his wake, Auchincloss has stepped in as caretaker boss. Although he is keen to show peace, Looney’s unorganized departure has created instability.
This has led to speculation about whether BP’s green plans will survive and whether the oil giant may now be vulnerable to breakup or takeover.
BP’s sheer size may be its best defense against the threat of opportunistic takeovers. Despite the setback, BP shares remained relatively stable this week, valuing the company at £90 billion.
Bernard Looney resigned as chief executive on Tuesday night – Kamran Jebareli/AP
However, this is far less than arch rival Shell, which is worth £170 billion, and US rivals Exxon Mobil and Chevron, which are worth $470 billion (£379 billion) and $319 billion respectively.
Although it would be a significant undertaking for one of these supermajors to try and swallow BP, the industry is built on megamergers. BP itself has done a lot: in 1998 it made the largest industrial merger in history when it bought the American oil company Amoco for $48 billion.
Adding to its vulnerability is the fact that BP has underperformed its rivals under Loonie. While shares of ExxonMobil, Chevron and Shell rose 93 percent, 56 percent and 29 percent, respectively, during Looney’s tenure, his own company’s shares rose only 15 percent, according to Bloomberg data.
Analysts at RBC Capital Markets say the loonie’s “bold intentions” to go green haven’t always translated into good business decisions.
For example, sales of fossil fuel assets such as BP’s Alaska oil operations – undertaken partly to pay off debt and fund investments in renewable energy such as wind farms – were “at bad points in the cycle and at relatively low valuations.” was executed”.
Even before Looney’s departure, BP had been talked about as a potential takeover target. Michael Stiasny, head of UK equities at fund manager M&G, said in January he would “not be surprised” to see a US rival swoop for BP, while analysts at investment bank Citi made a similar case.
The biggest obstacle to a complete takeover is BP’s national importance. Any bidder would face intense scrutiny from the UK government.
Strict takeover rules introduced in 2021 allow the government to block deals on national security grounds, with energy one of 17 sectors designated for special consideration.
If not a complete takeover, can BP be broken up? The scale and web of relationships within the company means a meaningful breakup is unlikely, but there is speculation that the new management could consider selling some green assets as they put the brakes on Loonie’s net zero strategy.
Looney committed BP to reach net zero carbon emissions by 2050, build 70,000 electric car charging points, develop 50 gigawatts of renewable energy projects and reduce its oil and gas production by 40 percent by the end of the decade.
“We must change – and change deeply,” he said in a speech shortly after taking office. “We have to do this because the world is changing rapidly, and society’s expectations from us are also changing rapidly.”
The plan received cautious praise from climate activists, but little enthusiasm from markets.
RBC said in a note to clients this week: “We think investors remain unconvinced on the strategic shift – and even after the most recent pivot earlier this year, since Bernard took over as chief executive. “BP has underperformed all major peers.”
Amid skepticism, and after the Ukraine war sent oil and gas profits back into the stratosphere, Loonie downgraded BP’s green commitments in February by slashing its emissions reduction target by 2030.
Auchincloss can now “step back… to focus more on value and value addition in the core business”, RBC analysts said.
He could follow the strategy of Italian oil giant Eni, which is in the process of spinning off its €10bn (£8.6bn) renewable energy division into a new business called Plenitude.
“It’s more likely that there will be a return to fossil fuels,” says Ashley Kelty, director of oil and gas research at Panmure Gordon. “BP has pursued a much more aggressive green transition than its peers and I think the reverse is likely to happen. It may be a case of going back to the main business.
BP may decide to sell various renewable assets, including its wind farm business – NTB/Reuters
He says BP could decide to sell various renewable assets, including its wind farm business in the US, in which it acquired a 50 percent stake from Equinor in 2021, or wind projects it is developing in the North Sea.
RBC said: “Looking ahead, the bottom line is that the world has clearly changed since Bernard took power. Views on ESG (environmental, social and governance) and the energy transition have evolved dramatically, and the approach to commodity business has also evolved.
An industry colleague says: “The question that investors always have is how do you extract value? One way to do this would be to spin off the green energy business.
“The second is to see how fast you move on the change – do you slow it down, or speed it up?
“I think the answer is clearly going to be a recession. And Looney’s departure gives them an opportunity to do just that.
Laurent Seglen, a clean energy investment banker who hosts a podcast, tweeted: “Memo for successor… more oil, less ESG,” adding that the next chief executive should “emulate Shell” and Must behave.
Investors are likely to ask probing questions about the way the loonie affair has been handled by BP Chairman Helge Lund and the rest of the board. That also leaves the company in an unstable position when it comes to an acquisition.
“The board has hardly hidden its glory,” says an industry associate. “Now that Looney is gone, it is hard to see BP’s strategy surviving in its current form.”
Lund held a series of emergency meetings with investors on Thursday to try to steady the ship. His message was the same as Auchincloss: business as usual. Only time will tell whether this turns out to be a pipe dream.