BP "Fills in Blanks" with Net Zero Plan

BP outlined on August 4 its strategy for becoming a net-zero emissions company by 2050, providing investors with some clarity on the its direction at a time when the oil industry faces unprecedented uncertainty.

Among the firm's key targets are a 40% reduction in its oil and gas production over the next decade, to around 1.5mn barrels of oil equivalent/day. The goal will be achieved through divestments – BP is targeting $25bn of disposals by 2025 – as well as a shift in capital spending towards clean energy. Furthermore, it will not look for oil and gas in countries where it does not already operate.

The major plans to scale up annual investments in low-carbon projects tenfold to $5bn by 2050. These projects include renewables and bioenergy, as well as ones establishing early positions in hydrogen and carbon capture and storage (CCS). The company wants to boost its clean energy capacity to 50 GW over the next decade – a 20-fold increase from the level in 2019. It sees blue hydrogen, produced from natural gas but with emissions abated using CCS, as having a key role in the energy transition.

The ultimate goal is to transform BP from an international oil company to an integrated energy company, CEO Bernard Looney told investors. But in the nearer term, oil and gas will serve as a smaller but still core part of the major's business, acting as an "engine of value creation" that will pay for the company's transition.

At the same time, BP said would continue rewarding shareholders by returning at least 60% of surplus cash flow through share buybacks once it has brought down its net debt to $35bn. It also aims to boost core earnings (Ebitda) by 7-9% between now and 2025.

BP's net-zero strategy fills in the blanks, Wood Mackenzie's vice president for corporate analysis, Luke Parker, said in a research note on August 4. 

"It leaves stakeholders with a much clearer idea of where BP is heading over the next decade, how it will get there and what that means for the value proposition," Parker said.

BP has gone further than any of the other majors in committing to transformation in the face of the energy transition. A number of European oil firms have also made pledges to reach net zero emissions by 2050, and have booked billions of dollars in write-downs to reflect fossil fuels' reduced role in the world's energy mix over the coming decades. But none have targeted such a steep reduction in oil and gas activity.

Their US counterparts, meanwhile, are more bullish on the oil and gas outlook.

"BP won't stop being an oil and gas company overnight, but the direction of travel is clear," Hargreaves Lansdown analyst Nicholas Hyett commented on August 4. "Investing in renewables will be expensive though and in the short term will probably be a bit of a money pit."

This means BP, which suffered historic losses in the second quarter and is saddled with almost $41bn of net debt, could be in for several tough years going forward.