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Business Leader of the Week: Under Murray Auchincloss, BP prioritises profit over climate goals

IFM_Murray Auchincloss
Murray Auchincloss has taken up the CEO's role after the departure of his predecessor, Bernard Looney, with a promise to focus on delivering value for shareholders

Murray Auchincloss, the newly-appointed boss of the BP (British Petroleum Company), appears to be trying to appease investors who are dissatisfied with the energy giant’s green targets by putting a stop to new offshore wind projects and hiring freeze.

Murray Auchincloss, the former head of BP’s finance department, assumed the CEO position with the commitment to concentrate on creating value for shareholders, following the unexpected resignation of his predecessor, Bernard Looney, in January 2024.

The choice to scale back BP’s environmental goals has increased worries that Looney’s strategy to wean the business off of fossil fuels, promising to “become a net zero company by 2050 or sooner,” may soon come to an abrupt halt.

BP has been under pressure from shareholders regarding its green targets because oil and gas profits have increased significantly since Russia invaded Ukraine, and some renewable projects have proven more expensive than anticipated.

“Murray Auchincloss had a chance to build on his predecessor’s legacy and become part of the solution to the climate crisis, rather than its harbinger. Instead, BP is following other fossil fuel majors by abandoning renewables and doubling down on oil and gas in the hopes of a quick buck,” Areeba Hamid, its joint executive director said.

According to reports, Murray Auchincloss is considering investing in and potentially acquiring new gas and oil assets to bolster BP’s current operations, especially in the Texas shale basins that it purchased from the Anglo-Australian miner BHP and the Gulf of Mexico.

Who Is Murray Auchincloss?

Murray Michael Auchincloss is a Canadian business executive. He has held senior roles in finance and management of BP, be it tax, business development, mergers and acquisitions and performance management. Murray was chief of staff to the BP CEO from 2010 to 2013. Most recently he has been BP’s Chief Financial Officer (CFO) and a member of the board of directors.

As CFO, Murray led a major modernisation drive in BP finance, including building the financial frame on which the energy giant’s strategy rests. Murray is also a member of the board of directors for Aker BP ASA, Norway. As the company’s boss, he has been given the responsibility of transitioning BP from an “International Oil Company” to an “Integrated Energy Company.”

Murray has improved BP’s financial teams significantly, kept operational expenses under control, and kept up his consistent practice of providing investors and markets with clear financial disclosures.

Why Is BP Appeasing Its Investors?

Murray Auchincloss has taken up the CEO’s role after the departure of his predecessor, Bernard Looney, with a promise to focus on delivering value for shareholders.

His decision to slow BP’s green ambitions has stoked concerns that Looney’s plan to move the company away from fossil fuels may soon be derailed. Why are the shareholders unhappy with the venture’s energy goals? Some of the renewable projects have proved more costly than expected, and profits from oil and gas have soared after the beginning of the Ukraine war.

BP set out plans earlier in 2024 to cut oil and gas production by just 25% between 2019 and 2030, well short of its previous target of a 40% reduction over the same timeframe. Murray Auchincloss is reportedly looking at investing in and possibly acquiring new oil and gas assets to strengthen BP’s existing operations, particularly in the Gulf of Mexico and the shale basins acquired from the Anglo-Australian miner BHP in Texas. So the motive is clear: to strengthen the existing non-renewable businesses as of now and consolidate the profit flow.

And it’s not BP alone following the above route. In June 2024, Shell set out its own plans to scale back its green growth ambitions, reducing the number of staff working on low-carbon solutions by about 200 roles while shifting the focus towards high-profit oil projects and expanding its gas business.

And it’s not that BP is completely ignoring its climate goals. Since 2020, the energy giant has built up a sizable portfolio of offshore wind projects capable of generating 9.5 gigawatts of energy in total in the United Kingdom, Germany and the United States that are yet to be developed. It wants to focus on these assets, as per the reports, rather than bidding for new renewable projects. Apart from this, it has reassigned dozens of people tasked with finding new renewables opportunities to its offshore wind projects in Britain and Germany, apart from undertaking further job cuts in the renewables, except for frontline roles.

BP’s shares too have underperformed rivals in recent months, prompting speculation about the company being a takeover target. Looney’s “net zero” plan was all about cutting the company’s oil production by 2030, while others were still planning to increase their fossil fuel production. BP is also investing in biofuels and low-carbon businesses that can generate short-term returns.

The company recently agreed to a USD 1.4 billion (1.1 billion euro) deal to take full ownership of its Brazilian sugar and ethanol joint venture, but when it comes to starting new biofuel projects from scratch, it is scaling back things.

BP explained the above process in the following words, “As Murray Auchincloss said in February, BP’s destination, transforming from international oil company to integrated energy company – is unchanged, but we are going to deliver as a simpler, more focused and higher-value company.”

“We set out six priorities that underpin this, including driving greater focus into the business, on to activities that create the most value, as well as delivering both the next wave of efficiencies and BP’s growth projects,” it stated further.

Murray Auchincloss has pledged a “more pragmatic” approach to BP’s green targets since taking up the CEO role. The venture will cut USD 2 billion in costs by the 2026 end, after reporting lower-than-expected profits for the first quarter of 2024. He is now planning to make the savings by choosing fewer new projects to invest in over the coming years.

As per the analysts, in his pursuit of making BP “a net zero company by 2050 or sooner,” Looney ended up letting the company overbid for renewable energy assets (assets which are not expected to generate revenue for years) over and above even established industry players.

For example, BP spent USD 2.5 billion on offshore renewables, hydrogen, electric vehicle (EV) charging and biofuels, out of a total capital expenditure of USD 16 billion in 2023-24. As per the reports, the company’s stance was deemed to be out of sync with what its shareholders wanted: a focus on its core oil and gas business along with a slightly tempered approach to the energy transition. The investor dissatisfaction further weighed upon BP’s share price, making it lag against its American peers in terms of valuation.

Murray Auchincloss is now conducting a course correction for the company, by making the latter redouble its operational efforts on its existing portfolio, rather than bidding for new renewable projects. At the same point in time, its activities on the green energy front will follow a tapered-down approach for the time being.

“Analysts believe the above measures will help the company’s shareholders to breathe a sigh of relief in the hope of a clawback of the over 12% decline in BP’s share price over the past five years. More so, given that Shell has seen its value appreciate by 10% over the corresponding time frame,” Reuters reported further.

Image Credit: British Petroleum Company

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