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Bernard Looney’s brief tenure at the top of BP is now always associated with his failure to disclose past personal relationships with colleagues. The oil tycoon, who resigned late Tuesday, is the third BP chief executive to leave early since May 2007. Still, he deserves credit for forcing BP to face up to its energy transition.
This is no easy task. The International Energy Agency likely expects demand for fossil fuels to peak before 2030. But the market hasn’t rewarded BP’s efforts to invest in clean fuels. He started his tenure with enthusiasm in February 2020, when he set out his net-zero plans, and BP’s share price performance, including dividends, was 14.5%, lagging its largest peers.
Earlier this year, Looney appeared to backtrack on his environmental commitments. Plans to scale back oil and gas production cuts by 2030 have faced fierce opposition from climate activists. However, BP needs to get a better return on investment from its clean technology spending. Investments in transitional fuels such as biogas – BP bought Archaea for $4.1 billion in December – offer higher returns than high-profile wind farm projects.
Thoughts now turn to inheritance. Note that BP’s board of directors fully supports Looney’s strategy. His charisma has smoothed the company’s transition to cleaner technologies – even though it will still be 75% dependent on fossil fuels by the end of the decade. Someone with the same political agility is needed to execute the plan. Transformation investments will account for a quarter of BP’s earnings by 2030, according to Citi.
There won’t be any financial worries. The appointment of Chief Financial Officer Murray Auchincloss as interim CEO demonstrates the board’s confidence in this regard. Free cash flow should average $16 billion annually from 2023 to 2025, according to Visible Alpha. Compared to Shell and Total Energy, BP does have slightly higher total debt relative to its capital. The increased leverage has helped BP’s shares surge as Brent oil prices have risen by more than a fifth since June.
BP’s shift to biogas, hydrogen and electric vehicle charging is supported by government policy and comes with considerable barriers to entry. The oil giant needs another long-serving boss, similar to Rooney’s predecessor Bob Dudley, to ensure its transformation stays on track.
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