Shares in BP, the UK oil giant, fell to their lowest level in two years on Thursday, as investors punished the company for abandoning its oil and gas business.
This could put pressure on new CEO Murray Auchincloss to abandon the strategy laid down by his predecessor, Bernard Looney, as the world turns to low-carbon energy to tackle climate change. BP’s profits are still mainly reliant on the growing fossil fuel market, which helps fund its dividend payments and share buybacks.
“BP under Bernard Looney made a big push into energy transition at a time when interest in green energy solutions was at its peak and interest rates were very low. Since then, commodity prices have started to rise, making traditional upstream business more attractive, while higher interest rates and tougher competition have made some low-carbon businesses less attractive,” said Henry Tarr, an analyst at Berenberg.
The stock fell 1.4 per cent in London on Thursday, to 424.55p, its lowest level since September 2022.
The fall in BP’s share price contrasts sharply with its UK rival Shell, which also set a goal under its former CEO to become carbon neutral by mid-century and achieve net zero emissions. But since Wael Sawan took over as CEO in early 2022, the company has adopted what he calls an “unrelenting” investment approach focused on delivering returns to shareholders. Shell subsequently pulled back on plans to cut its carbon emissions and invest in renewable power generation. Since Mr Sawan took over as CEO, the company’s share price has risen by about 16 per cent, while BP’s has fallen by 10 per cent.
BP’s total return over the past five years was just 14 per cent, the lowest of any supermajor. In recent years, BP has paid off about $30bn of debt as oil and gas prices soared, but its debt ratio has risen this year.
BP has maintained its buyback programme this year, but investors may be starting to worry about how long it can continue to do so.
“The concern about the sustainability of returns is growing relative to Shell’s predecessor. The market wants to see more investment in its cash cow, oil and gas,” said Will Hares, an analyst at Pembroke Research.