BP will abandon its pledge to reduce oil and gas output and announce at least one major divestment at its investor day on Wednesday, said people familiar with the plan, as chief executive Murray Auchincloss battles to convince activist Elliott Management that he can turn around the energy major.
Auchincloss has promised a “fundamental reset” to boost performance after it emerged the US hedge fund had built a near 5 per cent stake in the £72bn FTSE 100 company.
Shareholders and members of Auchincloss’s own board view this week’s investor day as the toughest test in the Canadian executive’s 27-year BP career.
Auchincloss became permanent chief executive 13 months ago after former boss Bernard Looney was sacked for a scandal over past relationships with colleagues. Some members of BP’s board think Auchincloss has moved too slowly in announcing the type of strategic changes needed to win back investor confidence, said a person familiar with the board’s thinking.
It was a “make or break” moment for the company, said Irene Himona, an analyst at Bernstein. As BP’s former chief financial officer, Auchincloss was too associated with the existing strategy to abandon it straight away.
Instead, he has signalled a desire to produce more oil and gas and reduce spending elsewhere but stopped short of announcing major changes. “He now needs to spell it out because enough time has elapsed and the outside world has changed,” she said.
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The investor day was planned before BP became aware of Elliott’s stake in the company but the arrival of the activist has increased the pressure on Auchincloss to make radical changes.
Elliott is yet to publicly comment on its position. In calls with other BP shareholders, the activist has been guarded about what it would like management to do, preferring to outline problems rather than prescriptive solutions.
“They were pretty guarded in what they said, slightly surprisingly so,” said one large BP shareholder who spoke with Elliott. “What we did get was lots of very good problem diagnosis.”
Among other issues, Elliott highlighted that BP’s volume-based targets for increased green energy production and lower oil and gas output had destroyed value by tying the company to static goals.
Under the transformation strategy presented in 2020 by Looney and Auchincloss, BP committed to cut oil and gas output by 40 per cent by 2030. They also promised to develop 20 gigawatts of renewable power capacity by 2025 and 50GW by 2050.
In 2023, amid the upheaval in energy markets following Russia’s invasion of Ukraine, Looney pared back the oil and gas target to a 25 per cent drop, saying governments were asking companies such as BP to invest in “today’s energy system”.
Auchincloss on Wednesday will pare it back further, abandoning the target completely, said two people familiar with the plan.
Himona at Bernstein said Auchincloss could go further and commit to growing oil and gas production from current levels. She noted ExxonMobil, Chevron and Shell had all said they would keep increasing production. BP produces about 2.3mn barrels of oil equivalent a day, down from about 2.6mn b/d in 2019.
Elliott is also pushing BP to make significant divestments but has not told other investors which assets need to go, the shareholder who spoke with the hedge fund said.
Since the Deepwater Horizon disaster in 2010 left BP with a $62.5bn bill, the company has always had targets for proceeds from disposals but stopped short of announcing specific planned divestments ahead of time. This is expected to change at the investor day with Auchincloss preparing to announce at least one major divestment, said a person familiar with the plan.
Analysts have outlined several options including selling the lubricants business Castrol, divesting parts of its marketing and retail empire and listing its US shale business in New York.
BP could also commit to spin off all or part of key low-carbon units, such as the solar business Lightsource BP or Brazilian biofuels producer Bunge Bioenergia, analysts and shareholders said. Auchincloss last year placed BP’s entire offshore wind business into a new standalone joint venture with Japan’s Jera in an example of what he has described as the execution of a “capital light” approach to investing in the energy transition.
Elliott built a stake in Anglo American in 2024 as it emerged that rival BHP had approached the UK-listed group about a takeover. Ultimately, Elliott backed Anglo after its chair and chief executive outlined a radical strategy to preserve the company’s independence by divesting several parts of the business, helping it fend off the BHP bid. The hedge fund wants to see something similar at BP, a person familiar with its thinking told the Financial Times.
Elliott has met Auchincloss and chair Helge Lund, and is yet to raise the possibility of personnel changes at either board or executive level, said two people familiar with the engagement.
However, some members of the board expect board changes will be next on Elliott’s agenda if the investor day does not impress, the person familiar with the board’s thinking said. That could include a push for a new chair, followed by a new chief executive, the person added.
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Lund has been chair of BP since 2019 and was instrumental in appointing Looney and developing its current strategy. He then oversaw BP’s protracted response to allegations that Looney had failed to fully disclose his past relationships with colleagues and stood by the former CEO’s strategy after he was dismissed.
When BP pared back its commitment to cut oil and gas output in 2023, its shares rallied more than 10 per cent in the following 48 hours. Some investors will be hopeful that officially abandoning all production cuts will have a similar effect this week.
However, doing so will probably require BP to frustrate other shareholders by also downgrading its plans to cut emissions. A group of investors wrote to Lund last week demanding shareholders get a vote on any changes that water down its climate goals.
“Clearly if they do step away from low carbon and step up a little bit the oil and gas, you would expect those targets to be adjusted downwards,” said Bernstein’s Himona. “BP is not going to be in the same position to cut its emissions as fast as in the current plan.”
BP and Elliott declined to comment.