BP bosses have a history of strategic shifts on the environmental front. The next CEO will have no such luxury

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I ran into Bernard Looney, the CEO of BP, in St. James’s Square in West London earlier this month. It was a chance encounter as I awaited the arrival of another corporate boss, and he looked somewhat alarmed when I approached him with my photographer in tow. He was probably fully aware at that moment that his career was on the precipice and assumed I was ambushing him.

But I had no idea that he was in trouble and we had a pleasant little chat. A week later, he was pushed out the door for having failed to disclose some of his past relationships with BP colleagues. He was replaced immediately on an interim basis by chief financial officer Murray Auchincloss while the hunt for a new CEO takes place.

As a long-time follower of BP – the former British Petroleum – which has a market value of about $150-billion, making it one of the world’s top oil companies, I wonder if Mr. Looney’s sins came at a convenient time for the board. They must have been somewhat – or entirely – exasperated by the shares’ underwhelming performance and Mr. Looney’s zigzagging strategic plans. While he was widely respected for his open, social-media-friendly management style, youthful vigour and environmental awareness, it often appeared that the Irishman, a long-time BP insider who became CEO in 2020, was unsure of the direction he wanted take the company.

In short, would BP in 10 or 20 years be a pure oil and gas company, a net-zero-bound energy player loaded with low-emission fuel production, or somewhere in the middle? Maybe Mr. Looney himself did not know as global energy markets faced upheaval brought on by the war in Ukraine, energy embargoes, rising prices, high interest rates and climate emergencies.

Energy giant BP begins search for new CEO with no clear front-runner in sight

First, some background on BP’s ever-changing strategy, which was not Mr. Looney’s invention.

In the late 1990s, company head John Browne (another BP boss whose career came to a premature end) was among the first big-name CEOs to realize that climate change was a clear and present danger. So he reinvented BP as “Beyond Petroleum,” the goal being to turn an oil company into a broad-based energy company that would see wind and solar farms join the hydrocarbons portfolio.

He learned the hard way that rebranding is easier than rebuilding, all the more so since shareholders wanted to own an oil company, not a green energy company, and petroleum engineers could not magically turn into wind and solar maestros. His vision was quietly scrapped a few years later, and BP essentially went back to being an oil pumper.

Enter Mr. Looney, who reversed the reversal of Mr. Browne’s plan and reinforced the company’s green credentials. He promised net-zero emissions by 2050, an ambitious goal that would see BP ramp up clean-energy investments and reduce oil production by 40 per cent by 2030.

Nice idea – too bad about the share performance. On a total return basis, which includes dividends, BP has significantly lagged Shell, Chevron, Exxon Mobil, TotalEnergies and other big oil companies over the past four years. The gap between BP and the U.S. biggies, which never strayed from oil, was especially wide. BP trades at five to seven times expected 2023 earnings; the U.S. giants trade at about 11 times.

So Mr. Looney found himself in the uncomfortable position of partly reversing his own reversal. Earlier this year, BP revealed that it would invest billions more in oil and gas development and trim the oil production cuts to 25 per cent by 2030 from the 40-per-cent goal set just three years earlier.

The partial climbdown may not have happened if Russia had not invaded Ukraine a year and a half ago, sending prices soaring. BP realized that oil production was too rich to trade away and that energy security based on hydrocarbons trumped the transition to a low-carbon world. What’s more, if investors wanted exposure to wind and solar energy, they would buy wind and solar companies directly. There was no sense doing so through a third party in the form of an oil company. Oil companies are not power utilities.

BP is not out of the green game, to be sure. It will spend some of its oil profits on bioenergy, such as biogas, and hydrogen, with electric-vehicle charging points thrown into the mix at retail outlets such as its Amoco gas stations. Shareholders have cheered BP’s return to the petroleum game while signalling it has not given up on low-carbon energy.

The board of BP and the company’s shareholders will not tolerate more strategic backtracking or volte-faces. The new boss will have to devise a strategy and stick with it. It seems that BP’s unofficial motto will be “back to petroleum” instead of “beyond petroleum.” Mr. Looney pushed harder than any of his rival CEOs to embrace energy transition. It didn’t work. BP shareholders are better off for the dilution of his strategic vision. The planet is not.