BP boss faces daunting transformation challenge

BP’s new CEO, Murray Auchincloss, will present the energy giant’s long-term strategy next February, and investors are waiting to see how he plans to transform the business. There are three key issues that investors need clarifying: what is BP, what does it want to be, and how will it get there.

BP’s troubles stem from the failure of successive CEOs to transform the business, despite efforts to expand into renewable energy. Julian Birkinshaw, dean of Canada’s Ivey Business School, notes that BP did the right thing by expanding into renewable energy, but the timing was off.

BP was founded in 1909 as the Anglo-Persian Oil Company and is still one of the world’s five oil “super-majors”. However, the group’s travails come down to the failure of successive CEOs to transform the business. John Browne‘s “Beyond Petroleum” vision in 2001 was ambitious, but it was wrecked by two significant events: Covid and Russia’s invasion of Ukraine.

Bernard Looney‘s new strategy in 2020 was also ambitious, promising significant cuts in oil and gas output by 2030, but it was eventually abandoned due to a backlash against the ESG agenda and the fact that some competitors stuck more closely to fossil fuels.

Some investors have warned that they are “keen to see that the climate change strategy isn’t weakened and is implemented by the new CEO”.

In the energy business, simplicity is easier to promise than achieve, and contradictions abound.

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The other oil majors face similar strategic challenges, including sluggish economic growth, falling demand in China, and regulatory differences between the US and other major economies. The threat of investors breaking up the business is also a concern, and Auchincloss has instigated a lot of change in a short time to avoid this fate.

Birkinshaw suggests that the best thing BP can do is to focus on what it’s been good at for over 100 years – digging fossil fuels out of the ground – and decide which renewable energy businesses to invest in.

As Auchincloss prepares to present BP’s new strategy, he will need to address the concerns of investors and demonstrate a clear path forward for the company. With the energy industry facing significant challenges, BP’s ability to adapt and evolve will be essential to its success.

One thing is certain – the next few months will be critical for BP, and the outcome of Auchincloss’s strategy will have a significant impact on the company’s future.

The market will be watching closely to see if BP can finally escape the pitfalls that have plagued its previous transformations.