The calls from Labour’s shadow climate secretary, Ed Miliband, and others for a “proper” windfall tax on BP and its brethren after the oil supermajor revealed a near-doubling of its profits are the least of chief executive Bernard Looney’s worries. A more powerful influence is the company’s own shareholders, who have clearly demanded a rethink on previous pledges to slash hydrocarbon output by 40% this decade.
Three years ago, when he was fresh in the job, Looney sounded as if he’d made up his mind. “Today is about a vision, a direction of travel,” he declared to an audience of investors and industry analysts. “The direction is set. We are heading to net zero. There is no turning back.”
And now? Well, there is still no reversal, BP would argue, because an extra $1bn (£830m) a year until 2030 is going into what the company calls its “transition growth engines” – meaning biofuels, electric charging points, wind, solar and hydrogen. That is what Looney meant when he spoke on Tuesday of “leaning in” to the same strategy.
But an equivalent extra sum will also be directed at oil and gas, meaning the ambition of reducing hydrocarbon output by 40% by 2030 has been scrapped in favour of a 25% figure. Whereas BP used to say it would happily live without the “low margin barrels” that would be removed from the production schedule, it now refers to “short-cycle fast-payback opportunities”. This may not count as U-turn, but it is a major detour.
The world is “a different place” and “needs energy that is secure and affordable as well as lower carbon”, argued Looney, emphasising the need for an “orderly” transition. Well, yes, Russia’s invasion of Ukraine had obviously transformed the economic calculation. Oil is now $80-plus a barrel v $40 when the transition-speak was turned up. That explains the investor pressure to be oily for longer: BP’s shares, even as they rose 7% after the latest results, are still rated substantially lower than those of unashamedly oil-focused ExxonMobil.
But one wonders where this plot is going next, and whether even the diluted hydrocarbon pledges are vulnerable to another rethink. BP is banking on returns on capital of 15% from its fresh oil and gas investments but referenced just 6%-8% in parts on its renewables power portfolio. Therein lies in the difficulty in trying to please all shades of investors. Even the crowd that loudly proclaims its environmental credentials seems to want two things at once: the halo of renewables plus more of the rewards on display on Tuesday – record profits of $28bn in 2022 and share buybacks galore – from dirty oil and gas.
Looney predicted his new, rejigged investment plan would deliver top-line earnings of $51-$56bn by 2030. His life will be trouble-free if that ambition looks like it will be met over the next few years. Problems will arise, however, if the financial goals start to appear out of reach. In that case, it’s not hard to imagine that pressure will come to abandon the “leaning in” line and be wobbly on renewables.
Miliband and co should take note. One can argue all day about whether a “proper” windfall tax on North Sea profits would set the headline rate at 75%, as now, or at 78%, as prevails in Norway. But the bigger story is happening elsewhere: it is the signal from the likes of BP, Shell and others that the transition to a lower carbon energy system will take longer than previously forecast. That is the more significant lesson from the current results season.