BP Promises Big Changes After Attracting An Uninvited Guest

British major integrated company BP announced plans on Monday for what it calls a “new beginning” in its continuing efforts to regain its footing and become more competitive with peer companies like Shell, Chevron, and ExxonMobil.

“We now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns,” CEO Murray Auchincloss told the Wall Street Journal a day after news broke that activist investor Elliot Investment Management had purchased a major position in the company’s stock.

BP’s Aggressive Uninvited Guest

Elliott, led by founder Paul Singer, has a well-established reputation for working to force management teams at major companies to implement radical changes designed to increase returns to investors. One such strategy includes forcing the breaking up of corporate conglomerates – Honeywell is a recent example – to divest some parts of the business to make the surviving parts more efficient and focused.

Elliott’s incursion, combined with BP’s decades-long struggles to remain competitive on the global stage resulted in speculation the company could be headed for a breaking-up. Roger Read at Wells Fargo said he expects Elliott’s next step to be to send a letter to shareholders detailing recommended solutions.

“In the letter, we would expect Elliott to illustrate both BP’s alleged shortcomings and a clear path to increase value (likely through some combination of reorganisation/cost reductions, divestment(s), significant debt reduction),” Read said. “Following those efforts, Elliott would likely expect BP to return significant cash to shareholders.”

A Quarter Century Of ‘New Beginnings’ At BP

It is fair to point out that Auchincloss’s promise of a “new beginning” amounts to what must by now add up to half a dozen “new beginnings” undertaken at BP in this century alone. Beginning with the adoption of the famous green sunflower logo and then-CEO Lord John Browne’s decision to change the company name to Beyond Petroleum in 2002, BP has too often appeared more focused on messaging and green virtue signaling than on safety processes and its core oil and gas business.

Despite all its various “new beginnings” in recent decades, BP has become increasingly less competitive with its international peers, in large part due to its poor safety record as exemplified by the 2010 Deepwater Horizon disaster in the Gulf of America, which resulted in the largest oil spill in U.S. history. As of this writing, BP’s market capitalization stands at $91 billion, less than half the $198 billion market cap of fellow British major Shell.

In Auchincloss’s defense, he took on the difficult task to rebuild BP’s fortunes after the disastrous tenure of the most tireless virtue signaler in the oil industry for half a decade, Bernard Looney. Looney resigned in the wake of a sexual impropriety scandal in December 2023, but not before he had managed to entangle the company in an array of unprofitable wind and solar ventures, misdirecting billions of dollars in much-needed capital from BP’s central oil and gas business in the process.

All the Looney-created folly came after the company had been hammered with what altogether would have to come to more than $100 billion in losses, penalties, fines, and lost business opportunities in the wake of a series of disastrous safety failures including major environmental and safety incidents on the North Slope of Alaska, the company’s Texas-based refinery, and Deepwater Horizon. In the wake of Deepwater Horizon alone, the company was hit with more than $65 billion in criminal and civil penalties, natural resource damages, economic claims and cleanup costs.

Auchincloss has implemented a series of measures over the last year designed to lessen BP’s financial exposure to its array of loss-leading wind and solar investments while maintaining some of the company’s virtue signaling opportunities. But, while that strategy apparently satisfies the Board of Directors, it hasn’t done a lot to curtail the rising dissatisfaction from major investors.

The Bottom Line At BP

If any major oil company is desperately in need of another “new beginning,” BP is it. Its’ struggles with competitiveness are the collective result of a quarter century in which its various management teams often seemed to lose sight of what business it is really in. The big question on Elliott’s mind seems to be whether Auchincloss is the person to lead a real recovery, and whether BP should continue to even exist in its current configuration.

This is a situation that bears watching, especially since Shell has long been known to covet an eventual buyout of its British competitor. Shell has never been quite willing or able to pull that trigger in the past, but if Elliott should succeed in forcing a major reorganization at BP that involves breaking the company up into smaller bites, Shell and other big suitors might well jump in to consume them.