BP to abandon oil and gas output cuts as CEO struggles to meet investor demands

BP is set to reverse its previous pledge to cut oil and gas production as part of a major strategic overhaul, with plans for at least one significant divestment to be unveiled at its investor day on February 26.

This move comes as BP’s Chief Executive, Murray Auchincloss, is under increasing pressure to demonstrate his ability to steer the company back on track amid mounting scrutiny from activist hedge fund Elliott Management, Caliber.Az reports, citing foreign media.

Auchincloss, who took over the role of CEO just 13 months ago following Bernard Looney’s sudden departure due to a scandal, is expected to outline a “fundamental reset” aimed at boosting BP’s performance. This comes after Elliott Management built a nearly 5% stake in the company, adding to the mounting pressure on Auchincloss to deliver meaningful changes.

The upcoming investor day is considered a critical test of Auchincloss’s leadership, as both shareholders and some members of BP’s board have expressed concern over the pace of strategic change. According to analysts, this marks a “make or break” moment for the Canadian executive, who was previously BP’s chief financial officer and heavily involved in the company’s current strategy.

Sources indicate that Auchincloss will announce BP’s decision to abandon its previous target of reducing oil and gas output by 40% by 2030, with plans to reassess its approach to production. While the company had already scaled back this target in 2023 to a 25% reduction, the latest move signals a complete departure from this goal. The decision comes amid growing uncertainty in global energy markets, especially following Russia’s invasion of Ukraine, and pressure from activist investors like Elliott.

Elliott has not publicly disclosed its stance on BP’s strategy, but sources suggest the hedge fund has been critical of BP’s previous volume-based targets, arguing that such goals have hindered the company’s ability to create value. The hedge fund has reportedly pushed BP to make significant divestments, although it has refrained from specifying which assets should be sold. In response, BP is expected to announce at least one major divestment during the investor day, potentially selling off parts of its lubricants business or US shale assets, according to sources close to the company.

Some analysts also speculate that BP could consider spinning off or divesting key low-carbon assets, such as its solar business, Lightsource BP, or its Brazilian biofuels operation, Bunge Bioenergia. BP has already made strides in this direction, including a recent move to place its offshore wind business into a joint venture with Japan’s Jera, as part of a “capital light” approach to its energy transition investments.

The company’s shifting strategy comes as Elliott has increased its influence, with some investors speculating that the hedge fund may push for leadership changes within BP if the investor day fails to meet expectations. There is talk within BP’s board that Elliott could seek a new chair or CEO if the company does not deliver on its transformation plans.

While BP has seen some positive market reactions to its reduced commitment to cutting oil and gas output, analysts warn that abandoning its climate goals could alienate other shareholders who have pushed for stronger emission reduction targets. Bernstein’s Irene Himona suggested that BP might need to revise its emissions reduction goals if it is to significantly ramp up oil and gas production, leading to potential conflicts among shareholders.

By Tamilla Hasanova