BP recently announced plans to cut its oil and gas production by 40%. The company will instead invest billions of dollars into low-carbon technology, bioenergy, hydrogen and other renewable-energy sources, as well as carbon capture and storage technology (CCUS).
BP announced a new business strategy in order to achieve its goal of becoming net zero by 2050 and “pivot from being an international oil company focused on producing resources to an integrated energy company,” it said in its new strategy.
The company already sold its petrochemicals business to Ineos for $5 billion in June. This is BP’s latest asset sale as it moves to cleaner energy.
“We believe our new strategy provides a comprehensive and coherent approach to turn our net zero ambition into action,” said BP CEO Bernard Looney, in a statement. “This coming decade is critical for the world in the fight against climate change, and to drive the necessary change in global energy systems will require action from everyone.”
First, the company will increase low-carbon investment to around $5 billion a year, which is 10 times what it currently invests. BP will scale up renewables and bioenergy, seek out hydrogen and CCUS, and build out a portfolio that complements low-carbon energies. It plans to develop 50 gigawatts of net renewable-energy generating capacity, increase hydrogen to 10% share of core markets and produce more than 100,000 barrels of bioenergy a day, which would be up from 22,000 currently produced.
Second, BP wants to help accelerate the global mobility revolution. The company plans to partner with 10–15 major cities in decarbonization efforts as they shape their own paths to net zero energy. BP will also build more than 70,000 electric vehicle charging points.
Third, the company will reduce its oil and gas production by over 40%. BP has said it won’t engage in exploration in new countries where it does not already have upstream activities.
BP said these strategies will lower emissions from its operations by 30–35% by 2030. Specifically, by 2030, the company plans to reduce emissions associated with carbon in its upstream oil and gas production by 35–40% and reduce the carbon intensity of its products by more than 15%.
BP plans to continue delivering long-term value for shareholders with a new distribution policy. It will reset dividends to a resilient level of 5.25 cents per share per quarter, commit to at least 60% of surplus cash as share buybacks and commits to 7-9% annual growth in earnings before interest, taxes, depreciation and amortization (EBIDA) per share to 2025.
“We believe that what we are setting out today offers a compelling and attractive long-term proposition for all investors—a reset and resilient dividend with a commitment to share buybacks, profitable growth, and the opportunity to invest in the energy transition,” Looney said.
While this will be a major shift, for the next five years, the bulk of BP’s annual capital expenditure will remain in oil and gas. BP also plans to cut 10,000 jobs due to the crash in oil prices.
The coronavirus pandemic has sped up the shift from oil, resulting in a $17.5 billion second quarter loss and dividend cut for BP. Demand for fossil fuels are expected to fall by 75% over the next 30 years if global temperatures raise by 1.5°C, or by 50% if global temperatures raise less than 2°C, according to an article in CNN.
“Energy markets are fundamentally changing, shifting towards low carbon, driven by societal expectations, technology and changes in consumer preferences,” Chairman Helge Lund said in a press release. “We are confident that the decisions we have taken and the strategy we are setting out today are right for BP, for our shareholders and for wider society.”