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The stock price of BP fell to the lowest since 1995 a week after the launch of the company’s climate plan that would see it turn from a predominantly oil and gas company to what chief executive Bernard Looney calls an integrated energy company.
Save for a sharp dip in late March, when BP’s shares dropped to $17.39 apiece as the pandemic crushed oil prices, the stock was doing well until about mid-August, when it started declining steadily, to reach $17.93 apiece at the time of writing.
“Investors remain skeptical, particularly as this move is being forced on the company by climate change,” Aviva Investors global head of governance Mirza Baig told Bloomberg.
The skepticism seems to linger despite a marathon of presentations BP went on last week, aiming to answer all questions regarding its reinvention.
“BP’s challenge lies in the building up of its skillset in renewable energy solutions and a competitive advantage in its chosen areas that allows investors to believe they can deliver attractive financial returns from the capital allocated,” Baig added in his comments to Bloomberg.
Some believe the reinvention strategy is nothing but greenwashing: a recent report by an anti-oil advocacy group argued none of the supermajors have ambitious enough goals to tackle climate change and their commitments were, overall, grossly insufficient to meet the Paris Agreement emissions targets.
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Others worry that BP would be unable to replace oil and gas revenues with revenues from renewable energy, where competition is already intense as it is in the utility industry.
The supermajor plans to increase investments in low-carbon businesses to $5 billion annually as part of its transition, stop oil and gas exploration in new countries and reduce oil and gas production by 40 percent by 2030. It also plans divestitures of assets that are currently stranded because of low oil prices, even if prices rebound.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
With its announced plans to divest of the majority of its oil and gas assets and reinvent itself as an integrated energy company in order to burnish its environmental credentials, how could investors keep faith in a company which is intending to abandon the core business that underpins its sustainability. That will also be the fate of other supermajors were they emulate BP’s strategy.
BP now finds itself in the unenviable position of neither satisfying the interests of its major shareholders nor getting the approval of the environmental activists who consider its reinvention strategy as nothing but greenwashing.
As a result, BP is paying the price for trying to square a circle.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London