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BP, in a Reversal, Says It Will Produce More Oil and Gas

The company said global concerns about energy security prompted the change, as it reported record profits for 2022.

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A BP fuel station in London, on Tuesday. The company’s profits for 2022 were almost double the previous year’s total. Credit...Neil Hall/EPA, via Shutterstock

 

By Stanley Reed

Feb. 7, 2023, 2:30 p.m. ET

BP’s chief executive, Bernard Looney, said on Tuesday that the company would pare back its plans to reduce oil and gas production in the coming years, a move that would result in higher-than-expected carbon emissions.

The shift appeared to be a response to changes in the geopolitical environment, at least partly caused by the war in Ukraine, which has sent oil and, especially, natural gas prices soaring.

The comments came as BP company joined other big oil companies in reporting record annual profit: $27.7 billion for 2022, almost double the adjusted profit of 2021.

With oil and gas so profitable, BP now says it will increase investment in the production of fossil fuels by about $1 billion a year above previous plans for the rest of the decade. It will also increase spending by a similar amount on low-carbon businesses.

 

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Mr. Looney said in an interview that much had changed over the three years since he made what were considered industry-leading commitments to cut back on oil and gas output and reduce emissions.

“The conversation three or four years ago was somewhat singular around cleaner energy, lower-carbon energy,” he said. “Today there is much more conversation about energy security, energy affordability.”

For a smooth transition to cleaner energy, “you need to invest in today’s energy system,” which is still primarily based on oil and gas, he said.

Analysts say that Mr. Looney’s shift may signal a major change at BP and, perhaps, other European oil companies. In recent years these organizations have restrained investment and focused on keeping shareholders happy with large dividends and share buybacks.

“This feels, to us, an important moment for the oil and gas industry,” Alastair Syme, an analyst at Citigroup, wrote in a note to clients on Tuesday.

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BP’s profits, and its assumptions that oil prices will be around $70 a barrel for the decade, are allowing Mr. Looney to promise a combination of increased investment and shareholder benefits, at least for now. Dividends will go up by 10 percent for the quarter, and BP announced $2.75 billion in stock buybacks, following $11.25 billion last year.

Despite those generous payouts, the valuation of companies like BP and Shell, which have embraced climate friendly investments in renewable energy, have substantially lagged those of their American rivals, Exxon Mobil and Chevron, which have largely stuck to producing oil and gas.

On Tuesday, investors seemed to welcome the announcement. BP’s share price rose about 8 percent.

The oil and gas business looks very different today than it did in 2020 when Mr. Looney, newly named as chief executive, announced he would pump up investments in clean energy like solar and wind and cut oil and gas production by 40 percent by the end of the decade.

Back then, oil and gas was a troubled business, with some analysts predicting it was in terminal decline as oil giants looked to other investments. BP took $17 billion in write downs on the value of its oil and gas fields, figuring they were no longer worth the sums on the company’s books. Other companies took similar steps.

Three years later, the landscape has changed. Brent crude, the international oil benchmark, averaged $101 a barrel last year, more than double its price in 2020, and natural gas prices soared, largely because Russia cut off supplies to Europe, pushing oil producers to record profits.

Under BP’s new plans, oil output will decline 25 percent by the end of the decade from 2019 levels, to two million barrels a day, rather than 40 percent as previously announced. Carbon dioxide emissions from the oil and natural gas BP produces will also be reduced 20 to 30 percent, instead of up to 40 percent.

The company says these investments will be in “shorter-term, fast-payback projects” and will still be appropriate for a world that is cutting fossil fuel use to meet climate targets.

 

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The company’s earnings presentation for analysts on Tuesday was at times reminiscent of a couple of decades ago, when new oil and gas projects were the highlights. Gordon Birrell, who runs the company’s oil production unit, said that nine major projects in Mauritania, Indonesia and the Gulf of Mexico off the United States were coming online through 2025.

This is not the first time BP has taken a step back from ambitious plans to make itself greener. A quarter-century ago, BP’s then-chief executive, John Browne, instituted the slogan “Beyond Petroleum” as he pursued investments in renewable energy, putting the company at the forefront of the move to recognize the role of oil and gas in climate change. That effort largely dissipated, partly under financial pressures of the massive 2010 Gulf of Mexico oil spill.

Some environmental groups said that the company was once again headed in the wrong direction.

Greenpeace UK said the company was “mining gold out of the vast suffering caused by the climate and energy crisis” and that the new strategy would “fail to deliver much needed energy security” to Britain.

Mr. Looney, though, said he would also increase investment in cleaner energy by an amount to that of oil and gas, but with a sharper focus on businesses closer to BP’s strengths, like charging points for electric vehicles, cleaner fuels made from plant substances and biofuels gathered from landfills. BP says “transition businesses” were about 30 percent of $16.3 billion in total investments in 2022.