BP slashes ‘net zero’ renewable energy spending by $5 billion, turns to fossil fuels: What’s behind the strategy shift?

British energy company BP confirmed Wednesday that it would slash spending on green ventures and increase its oil and gas production, a change in direction that it hopes will bolster its flagging share price but has been met with incredulity from climate action campaigners.

In a statement titled “Reset BP,” the company said it will reduce its spending on net zero transition businesses by $5 billion a year to up to 2 billion. By contrast, it said it would increase its investments in oil and gas production by about 20% to $10 billion.

CEO Murray Auchincloss said that the company is focusing its spending on BP’s “highest-returning businesses to drive growth” and that it will be “very selective” in its investments in renewables.

“This is a reset BP, with an unwavering focus on growing long-term shareholder value,” he said.

The strategy represents a pullback from the company’s much-vaunted plan five years ago, under then CEO Bernard Looney, to shrink oil and gas production in favor of net zero businesses.

Auchincloss told investors after the release of the update that the company’s faith in the green energy transition was “misplaced” and that the company went “too far, too fast” in recent years. Demand for oil and gas, he added, will be “needed for decades to come.”

However, he said renewables still pose a “significant opportunity” and confirmed that the company still wants to meet net zero carbon emissions by 2050.

“Global carbon emissions need to be reduced, and as well as looking for more energy, countries, companies and customers are looking for lower carbon products and services to support their own decarbonization objectives,” he said.

The update is clearly aimed at bolstering investor support in light of the company’s flagging share price.

So far, the update doesn’t appear to have appealed to investors, and the company’s share price was down 1.4% in mid-afternoon Wednesday trading. However, the retreat may represent some profit-taking on the part of investors following a rally in recent weeks on speculation that the company was about to change tack.

The company’s stock underperformance against its peers over the past few years such as Shell, ExxonMobil and Chevron, has stoked market speculation that BP may move its share listing to New York from London, or even make it a takeover target.

The influential U.S. hedge fund Elliott Management recently took a nearly 5% stake in BP, and it is believed that it has sought to push BP back towards fossil fuels to boost profit.

Auchincloss has already spun off BP’s offshore wind business in a joint venture while he’s looking to offload its onshore wind arm. The group has also been slashing costs in the face of tougher trading. Recently, it announced it would cut more than 5% of its workforce.

BP’s change of strategy is facing sharp criticism from environmental campaigners, who had previously warmed to the company’s insistence that the future was green.

“This move by oil giant BP clearly demonstrates why super-rich corporations and individuals, chasing short-term profit for themselves and shareholders, cannot be trusted with fixing the climate crisis or leading the transition to renewable energy we so badly need,” said Matilda Borgström, U.K. campaigner at climate action group 350.org.

“Pumping money into more oil and gas increases the risk of climate impacts for us all, flies in the face of legal climate targets, and with the renewables sector growing exponentially is a big risk to the shareholders that BP is so keen to please,” she added.

BP slashed planned investment in renewable energy and said on Wednesday it would increase annual oil and gas spending to $10 billion, in a major strategy shift aimed at boosting earnings and shareholder returns.

The oil major cut planned annual investment in energy transition businesses by more than $5 billion, from its previous forecast, to between $1.5 billion and $2 billion per year.

It is the latest big company in the energy sector to change its position in response to the need to lower carbon emissions and curb climate change, returning the focus to oil and gas.

BP now aims to grow oil and gas production to between 2.3 million and 2.5 million barrels of oil equivalent per day (boepd) in 2030. It pumped 2.36 million boepd in 2024.

“It’s a radical shift,” CEO Murray Auchincloss told Reuters in a phone interview after the announcements during the company’s capital markets day.

Under Auchincloss’ predecessor, Bernard Looney, BP pledged in 2020 to cut oil and gas output by 40% while rapidly growing renewables by 2030. It lowered that target to 25% in 2023.

Auchincloss said the transition to renewable energy has been slower than BP initially expected following the war in Ukraine, the pandemic, volatile energy markets and changing attitudes towards renewable energy in some countries.

“What that meant is hydrocarbon demand continues to be very, very strong, stronger than we would have envisioned five years ago, and the transition has not proceeded at the pace we would have thought,” he said.

BP is seeking to regain investor confidence after underperforming its peers and has come under added pressure to make transformative changes after activist investor Elliott Investment Management built a stake in the company.

“Three big things we’ve done: reducing capex, reducing costs, material divestment with an outcome of growing cashflow and returns,” Auchincloss said.

“We will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset BP, with an unwavering focus on growing long-term shareholder value.”

BP plans to raise its dividend by at least 4% per share annually and expects first-quarter share buybacks of $750 million to $1 billion, a downward revision from its previous $1.75 billion forecast.

It aims to spend between $13 billion and $15 billion annually through 2027, trimming $1 billion to $3 billion from 2024 levels, with 2025 capital expenditure expected at around $15 billion.

BP shares were down about 1.7% by 1258 GMT, while the broader energy index was marginally lower.

“The updated guidance directionally all looks in line with expectations, however we think the capex cut was less material than many investors were suggesting to us, while in the near term, shareholder returns for BP are now lower than peers,” said RBC Capital Markets analyst Biraj Borkhataria.

“To us, much of the release looks to be BP making the right calls for the long term, but it may not please investors today,” Borkhataria added.

BP also said it was reviewing its lubricants business, Castrol, and targeting $20 billion in divestments by 2027.

It plans to bring in a 50% partner for its solar business, Lightsource BP, with a sale process expected in the next few months.