BP revises green ambitions as gas trading surges

Anyone old enough to recall the failed rebranding of BP (BP.) as “Beyond Petroleum” would not have been surprised by recent comments from the current chief executive, Bernard Looney, suggesting that the group would slow its transition to low-carbon energy sources. BP now aims to reduce fossil fuel production by around 25 per cent through to 2030, compared with the previous 40 per cent target rate.

The rethink highlights the folly of aligning group production targets with arbitrary government timeframes, but shareholders won’t be overly concerned given the impact of soaring energy prices on profitability. Fourth-quarter underlying replacement-cost profit came up slightly short of consensus at $4.81bn (£4bn), leading to an annual rate of $27.7bn, a year-on-year rise of 116 per cent. And surplus cash flow tripled to $19.3bn, sufficient to justify a further $2.75bn share buyback, while management pointed to an 11th successive quarter of debt reduction.

Geopolitical developments will have played a role in the amended low-carbon timetable. Following the Ukraine invasion, the group abandoned its stake in Russian oil giant Rosneft, leading to a $25.5bn accounting charge in the first quarter. However, the invasion also sent gas prices soaring, which proved hugely advantageous for the group’s natural-gas trading operation, virtually cancelling-out the Rosneft hit.

There was progress on the environmental front as the group pursued its biogas strategy through the completion of the Archaea Energy acquisition, while its electric vehicle charge points increased in number by 65 per cent. But the feeling is that some institutional investors see more clarity in the strategic objectives of transatlantic rivals such as Exxon Mobil (US:XOM), in that they have been rather less gung-ho on prospects for an accelerated energy transition.

As more capital is given over to renewables investments, shareholders will be justifiably anxious to discover if it will produce commensurate returns. This is the dilemma faced by Looney and other oil industry figures. But the group’s early enthusiasm should have been tempered in the knowledge that its first unsuccessful tilt towards a greener future was followed shortly afterwards by the Deepwater Horizon disaster. Practical developments tend to get in the way of wishful thinking.

Gas prices have moderated to a degree, so revenues from the matching of buyers and sellers will trail away in the current quarter, but the supply shock in the market demonstrated the value of this corner of the business. The shares change hands at 5.6 times consensus earnings – hardly expensive relative to the sector – but energy prices aren’t quite so favourable, and we would like to get more clarity on governmental windfall tax regimes. Hold.

Last IC View: Hold, 482p, 01 Nov 2022