A change at the top is a moment for reappraisal. Bob Dudley, BP Plc’s CEO, rehabilitated the oil major after the fatal Deepwater Horizon rig explosion and spill in the US in 2010. His replacement Bernard Looney, appointed on Friday, should avoid the temptation to think his job is primarily to sustain that legacy.
Like all the big international oil companies, BP under Dudley acknowledged the need to adapt to a world that craves more energy but fewer fossil fuels. The standard industry blueprint is to target more profitable conventional oil production, while investing in renewables and cutting emissions by, for example, using carbon sinks to store greenhouse gases underground and planting forests.
But the precise balance of these goals matters. BP must steer between two extremes. On the one hand, it faces pressure to cease all investment in hydrocarbon energy and channel all of its free cash flow into clean energy — a wholesale transformation of the company.
No wholesale transformation
Alternatively, it could accept that when an industry is disrupted by an epochal change, like the shift to renewables, new entrants are best placed to exploit the opportunity. On that view, BP and its fellow oil majors should effectively start running themselves down, while paying out dividends to shareholders who can invest in companies better placed to lead the transition to new forms of energy.
It would be better to see BP’s role as doing something between those two alternatives: pursuing some activities in clean energy, while also providing cash for others to deploy. Looney’s first task will be to look honestly at where BP has distinctive capabilities in renewables.
There are some areas where it makes sense for the company to put its financial resources to work. It can turn its retail gas stations into charging stations for electric cars, as it’s doing. In turn, there’s logic in investing in related electrification infrastructure.
But it would be foolish to believe that BP can transform itself completely into a wind, solar and battery company with a small legacy oil business.
Manage the decline
Unusually for the new CEO of a $124 billion company, Looney must face the reality that BP’s conventional business is going to decline and his role is largely about managing that. Dudley had to contend with the political hostility generated by Deepwater Horizon.
Looney has an even more profound challenge. He will be dealing with an investor base of university endowments, pension funds and sovereign wealth funds, which are all under pressure to exit oil investments completely. There could be worse uses for BP’s cash than buying back its shares and letting those shareholders decide where to re-invest.
By reputation Looney is energetic, personable and sharp, as has been demonstrated by his rapid promotion through the ranks. He’ll need to bring vigour in carrying out a realistic appraisal of what BP can do and what’s best left to others.