BP Tries To Pull A Rabbit Out Of Its Hat, Rocky Says “Again?”

Oil supermajor BP has announced a major strategic shift, planning to increase funding for clean energy tenfold by 2030, reaching $5 billion annually, while allowing oil and gas production to decline 40% over the same period. CEO Looney (I will resist any quips) describes it as a “comprehensive and coherent” approach to reaching the company’s net-zero carbon goals.

Skeptics have naturally reminded everyone of BP’s earlier strategy, relabeling the company “Beyond Petroleum” back in 2001, which didn’t really work out so well. By 2006, BP was investing less than $700 million in “gas, power and renewables” compared to nearly $14 billion for petroleum exploration and production. Its gas-fired power capacity dwarfed its solar generation. In the 2019 Annual Report, solar and other alternative energy operations are repeatedly touted, but their financial information is still lumped with “other” (including corporate and shipping), with sales less than $2 billion compared to $54 billion for its upstream segment.

Still, as CEO Looney says, “The world’s carbon budget is finite and running out fast; we need a rapid transition to net zero. We all want energy that is reliable and affordable, but that is no longer enough. It must also be cleaner.” Not to be confused with the Exxon executive who said in 2009, “The world faces a significant challenge to supply the energy required for economic development and improved standards of living while managing greenhouse gas emissions and the risks of climate change,”

That comment was to explain a $600 million investment in algae biofuels, which Exxon hoped would yield a viable product in a decade. Later, the forecast was pushed out to be a mere 10 tb/d of production by 2025, and most of the others pursuing research into algae-based biofuels have pulled back.

OilPrice.comExxon’s Big Bet On Algae Biofuels Is Crumbling | OilPrice.com

Of course, past performance is no guarantee of future results, as investment firms regularly warn, and it could be that Looney will succeed. As Bullwinkle said, “This time for sure!” And there is a lot of pressure for the oil industry to commit to environmental, social and corporate governance (ESG) goals, including reduced greenhouse gas emissions. But I reminded of former Exxon CEO Rex Tillerson (whatever happened to him?) resisting pressure to invest in solar power because the company didn’t have a competitive advantage in that field and should stick to its core business.

Which sounds familiar to all of those graybeards who have been watching the oil industry since the 1970s. The ESG of the 1970s was CAPM, or the capital asset pricing model, which academics used to advise companies to diversify their businesses. This was picked up by Wall Street, with Standard and Poor’s suggesting in 1980, “Diversification into alternative energy fields should offer promising new opportunities for increasing profitability.” 

How did that work out? Well, a mere four years later the same Standard and Poor’s remarked “Diversification out of the oil business had been disastrous for most of the majors…” Mobil’s purchase of a department store chain, Exxon’s acquisition of an office equipment maker, ARCO’s photovoltaics division, and many others all proved to be unwise moves and resulted in significant losses. (See chapter 3 of my book The Peak Oil Scare and the Coming Oil Flood.)

Still, BP is to be lauded for saying they are investing in clean energy with expectations of significant profits, not just to satisfy Wall Street, the City, or climate activists. Which is not to say they will deliver on those expectations, but at least the goal is correct. Hopefully, BP can be the Tesla
TSLA
of the oil industry, and not the Solyndra.

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