BP is in a mess – and the climate is being asked to foot the bill

Between poor figures and the exit of its renewable energy chief, the big oil firm is flailing, writes James Moore

Those who hold the interests of the planet close to their hearts could be forgiven for indulging in a little schadenfreude at BP’s expense. The oil giant delivered a miserable first quarter, in which its “underlying” profits halved to $1.38bn (£1.03bn), when compared to the same period last year.

The company also missed analysts’ forecasts, which ranks high on the list of crimes and misdemeanours on Wall Street and in the City. Worse still, it has committed this sin for three out of the last five three-month reporting periods. Scratch the surface, though, and you’ll see there really isn’t much to be happy about.

Start with the fact that Giulia Chierchia, the company’s strategy boss and the architect of its abortive move into renewables, is out. Chierchia was conspicuously absent when BP announced it was putting its eggs back in the hydrocarbon basket in February. She will not be replaced. And the chair, Helge Lund, who had backed the move, is also departing.

This would seem like a win for Elliott Management, an activist investor, which has been pushing for better performance and a change in strategy. Activists like Elliott target underperforming companies, jumping in when a business hits trouble. Standard practice is to make a lot of noise and rile up other institutional shareholders, with the aim of pressuring the board into following the activists’ preferred route out of the bog, so they can exit with a financial killing and move on to the next target.

A quality board, confident in the strategy, the ability of the company to deliver on it, and the people charged with doing that, should be able to face down the likes of Elliott. The fact that BP hasn’t speaks volumes. But even its pivot away from renewables isn’t enough for the activist group, which wants BP to go faster.

Other institutions – those who understand that investors will pay a (very) high price for letting the planet burn – are restive over the switch. Swinging with the wind is not a good way to run a company because, in the end, you don’t make anyone happy and leave yourself slap bang in the middle of a perfect storm. That’s where BP is.

Did I mention debt? We have to talk about that, too, because BP is carrying a lot of it. The number rose to $27bn (£20bn), an increase of $4bn (£2.9bn), over the quarter. It says it is speeding up asset sales, targeting between $3bn (£2.2bn) and $4bn this year, with the aim of getting the number down. A (rather wide) range of between $14bn (£10bn) to $18bn (£13bn) is being targeted by the end of 2027. CEO Murray Auchincloss and finance chief Kate Thomson need to get their skates on if they’re going to hit that.

Faced with such a mess, the former banged on about BP’s “operational performance”, while the latter talked about cutting costs – par for the course for companies in a jam and searching vainly for a get out of jail free card – along with the wonderful things tech can do (ditto).

Trouble is, the numbers are the numbers – and they’re awful. BP is a super tanker heading for the rocks. Its investors are running scared of the resulting oil slick they might have to deal with, and the shares have taken a bath.

If you set aside the fact that BP’s product wrecks the environment, perhaps the biggest problem it faces is that the product is going cheap. BP hugging hydrocarbons, and pinning its future on them, inevitably leaves it exposed to the global oil price. Life is tolerable when it is high and the cash is rolling in. You have a bit of headroom. It is easier to buy off investors with dividends and especially share buybacks.

When your balance sheet is weak and wilting under a welter-burden of debt, things get a lot more complicated. BP’s strategy is predicated on an oil price of $71.5. Brent crude was trading below $65 (£48.4) on the day it released its numbers. Oops.

The company is still buying back shares because it has to offer investors a crumb or two of comfort – but just less than analysts had hoped for and expected. To save this great lumbering oil tanker from the rocks, it is going to require a very quick turnaround or the vultures will start to circle and BP will find itself gobbled up by a predator. Probably an American one.

As for planet Earth and its climate? Its interests aren’t served by either scenario. It – and all of us living on it – are being asked to take one for the team.