Earlier this week, a story from the Telegraph caught our eye:
It was meant to be the moment when one of Britain’s most powerful companies broke decisively with its fossil fuel past.
Addressing journalists and executives at the Royal Lancaster Hotel overlooking Hyde Park, Bernard Looney, BP’s new chief executive, urged them to “reimagine” his company as a champion of green power.
By 2030, BP would have cut oil and gas production by 40pc, he pledged, with the lost fossil fuel income replaced by wind farms, solar parks and biofuels made from plants.
As the article goes on to explain, things didn’t exactly turn out that way.
In fact, not only did things go wrong, it went spectacularly wrong. While Shell (SHEL) and ExxonMobil (XOM) continued to focus on exploration and production, BP (BP) continued down the path to “Beyond Petroleum” by investing in wind and solar.
The result was, as the Telegraph explained:
In February 2023, after a blockbuster $28bn profits for 2022 linked to the global energy crisis, Looney was forced to slash his pledge to cut production by 40pc by the end of the decade to a more modest 25pc.
BP’s shareholders had realised that the green spending they supported in 2020 had halved their dividends. Total shareholder returns had underperformed Shell by 15pc, France’s TotalEnergies by 30pc, Chevron by 60pc and ExxonMobil by 100pc.
Without the benefit of hindsight, maybe you can forgive BP for trying to look “Beyond Petroleum”. After all, that was back in 2020.
Politically, after the surge of Brexit and Donald Trump’s first election win, both in 2020, attitudes seemed to be shifting back towards the left. “Woke” was in, and so therefore was alternative energy.
For any business that, in effect, has one product can you blame it for wanting to diversify?
But we’re possibly being too kind. Because companies that successfully switch from one area of specialisation to another are few and far between. And those that have succeeded have done so because they had a vision and an idea of how to make that transition.
Most of all, they didn’t abandon what made them successful. And they didn’t abandon their core business just because they feared protests from pressure groups. They added news idea on top of the existing idea.
Two examples that immediately spring to mind are Apple (AAPL) and Microsoft (MSFT). We’re sure there are others. And no doubt there are British examples too.
In the case of Apple, it didn’t denigrate and abandon its desktop computer business in order to launch the iPod and iPhone. They became part of the business. The growth of one didn’t require the destruction of the other.
Microsoft has similarly diversified. From being a mostly software business to incorporating gaming (Xbox), social media (LinkedIn) and cloud computing (Azure) into its business.
Again, in order to do so it didn’t require the business to pledge to cut sales of Microsoft Office by 40% over the following ten years. Such a statement and goal would be lunacy.
But by promising to cut oil production by 40% by 2030, that’s the precise equivalent of what BP attempted to do. Of course, within three years, the company began to backtrack on that disastrous target.
In 2023 it reduced the target to 25% by 2030, and now it has effectively abandoned it altogether. As the Telegraph further reports, “Overall, [the CEO] has suggested BP’s oil production will rise by 2-3pc a year until 2030.”
But now maybe things are looking up again. If it begins to refocus back on its core business, optimism should be justified.
First it will have to deal with activist investor, Paul Singer. Singer’s hedge fund owns around £4 billion in BP stock. And Singer isn’t noted for taking a backseat. Whatever he demands, it’s likely BP will comply.
So far, the market likes the news. Time will tell.
Links to last week’s essays below.
Hope you’re having a great weekend.
Cheers,
Kris Sayce
Publisher, Southbank Investment Research
[Ed note: This essay was also published today in Southbank Sunday Brunch, the free email reserved to our paying subscribers.]
What you missed this week…
More admirals than ships?
Although we’re living in an era of “big data”, artificial intelligence (AI) and supercomputing capabilities, sometimes a simple, anecdotal statistic captures everything one needs to know about a topic. When it comes to the present capabilities of the Royal Navy, all one needs to know is that it has more admirals than warships. Read more here…
Germany moves right. Sort of.
Germany will shift to the right following thi weekend’s elections. By how much depends on what coalition the leading CDU is willing or able to form. Any new coalition may be as unstable as the last. Read more here…
What if the US revalues its gold?
You might have read in the financial pages of late that some of President Trump’s senior economic advisors are considering revaluing the US government’s gold stock to market. Currently, it’s held on the balance sheet at $42.22 per troy ounce, the final official dollar-gold exchange price under the Bretton Woods system. The current market price is just shy of $3,000. Read more here…
Find your way back: to gold
By coincidence, it was in 1981 that future Federal Reserve chairman Alan Greenspan published an op-ed in the Wall Street Journal advocating going back to the gold standard. He also made a specific suggestion for how this could be done. Read more here…
Microsoft’s $276 billion opportunity (that isn’t a crazy quantum chip)
From inventing new matter in the form of topoconductors for its quantum computing chip – which not only could change computing as we know it, but physics too – to the release of AI-powered Xbox real-time game creation, it feels like Microsoft (MSFT) is fast moving away from Outlook and Word titan to the most diverse tech company on earth. Read more here…
