The Feb. 26 announcement by BP p.l.c. (BP) CEO Murray Auchincloss that “…we have fundamentally reset BP’s strategy,” did not surprise capital markets. BP’s share price has run-up since a February 10 report that activist hedge fund Elliott Investment Management (Elliot) built what is now a reported ~5% stake in the company.
BP has long been under shareholder pressure to close its valuation gap with U.S. majors ExxonMobil (Exxon) and Chevron Corporation, and Shell plc, its European rival. That pressure intensified over the previous weeks as Elliot pressed BP to reassess its renewable energy investments and refocus on its core oil & gas operations.
Elliot is one of the largest and most influential activist funds in the world, with an impressive track record of generating value from companies undergoing strategic transitions, or those it perceives as undervalued. Both apply in the case of Elliot’s investment in BP. In Elliot’s view, the company should prioritize near-term financial performance by returning to its core operational strengths.
We’ve been here before
BP announced in 2020, under then-CEO Bernard Looney, plans to reduce oil & gas output by 40% by 2030 and significantly increase investment in renewable energy. Since February 2020, BP’s share price has underperformed its competitors who have maintained a more traditional focus on fossil fuels.
Auchincloss’ strategy includes abandoning the firm’s previously announced cuts to oil & gas production, scrapping its 2030 renewable generation target, reallocating capital from lagging renewable businesses to its more profitable oil & gas segment, and a promise to raise capital by divesting non-core assets.
Investors’ marginally negative reaction to the announcement was less about BP’s pivot, which was largely priced-in, and more about the scaling back of its quarterly share buyback program. BP returned $1.75 billion to shareholders through buybacks in Q4 of last year but said it would return only between $750 million and $1 billion to investors this quarter.
Moreover, when other oil & gas companies have scaled back or adjusted their climate-related targets, the immediate share price reaction has varied. In some cases, investors have responded positively, perceiving a renewed focus on core profitable operations. However, such reactions are not uniform and depend on broader market conditions, investor expectations, and the specifics of the strategic adjustments.
From hydrocarbons to electrons, but still hydrocarbons
BP’s pivot is not without risk, however. The speed and scale of the energy transition is difficult to project. While clean energy is now more cost effective than fossil fuels on a levelized cost basis, concerns regarding the grid, permitting, and the political power of the oil & gas industry make a fast transition challenging. Yet in scaling back investment in renewables, BP risks falling further behind competitors positioning themselves to capitalize on the growing demand for low-carbon energy.
Take TotalEnergies SE (Total), the French supermajor. Compared to its peers, Total has pursued a relatively balanced approach to decarbonization, integrating growth in its hydrocarbon business with substantial investments in renewable energy. Total continues to invest significantly in lower-carbon energies, which has contributed to a 13% reduction in the lifecycle carbon intensity of its energy products sold since 2015. This ‘shareholder hedge’ seems to have been beneficial; the company’s share price has outpaced BP by a significant margin since 2020.
Across the Atlantic, Exxon has maintained a disciplined approach to capital allocation by only investing in low-carbon businesses where it believes it has a competitive advantage. And Exxon has made these expenditures in step with (but not ahead of, or behind) the current pace of the energy transition. Over a five-year period, Exxon’s stock outperformance over BP, and Total for that matter, is significant.
Strategy over ideology
BP’s pivot is not a referendum on the energy transition itself, but rather a reminder that the speed and execution of the transition, especially for oil & gas companies, is still uncertain and company-specific. Managing both short-term financial performance and long-term positioning in a decarbonizing economy remains a critical factor in capital allocation decisions. There is no one size fits all corporate strategy.
BP’s challenge now is whether it can pivot yet again if market signals, policy, or consumer demand accelerates the transition away from fossil fuels. That pivot could prove challenging. BP is now committed to grow its upstream business through investment of ~$10 billion per year for 2025 to 2027, which increases the risk those assets will become stranded. Investors should assess not just whether companies are investing in low-carbon energy but how they are managing capital, balancing near-term returns with long-term risks, and building flexibility into their strategies.
For institutional investors, this means the energy transition should remain a central consideration, but investing in it requires understanding how different companies navigate its complexities. Those companies who can hedge their bets, remain agile, and execute well on capital deployment, not just chase a narrative, will likely be the long-term winners.
The energy transition is not a straight line.
David Root
Head of Product Management
FFI Solutions