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BP's performance in 2021 reversed a shift into the red in
COVID-blighted 2020 and saw the company post its highest profit in
nearly a decade at $12.9 billion.
The group benefitted as global crude oil prices increased in 2021 amid
post-pandemic demand, bringing in an influx of cash, including from
"very strong" oil prices.
At the same time, BP decided to rejig goals put in place in
2020, when it pledged to transform from an
integrated oil company to an integrated energy company (IEC). It
broadly defined this as a company delivering solutions not
resources.
Before the official publication of BP's earnings report,
one-time UK opposition leader Edward Miliband called for a windfall tax on BP as the
recent natural gas price crunch had
also been felt by consumers and energy suppliers in the
country.
BP's CEO Bernard Looney did not see a tax as the way forward.
"If anything, the UK needs more gas, not less gas right now … And a
windfall tax isn't probably going to incentivize more investment,
number one. And number two, what we need to do is help Britain
transition," said Looney in a recent call on the earnings
report.
Production targets changed
Along with adjusted climate goals, BP last week said it is
giving itself more time to potentially increase earnings from
selected hydrocarbon activities.
Following the launch of its transformation plan in 2020, BP
pledged to cut traditional hydrocarbon production and focus on
"resilient hydrocarbons," which it defines as those produced by
cheap and competitive major projects with improved production and
lower emissions. It planned to "maximize throughput and revenue" by
managing production in oil and gas assets and refinery improvement
plans.
After the 2020 transformation plan's publication, the head of a
new BP unit focused on delivering resilient and focused
hydrocarbons, Gordon Birrell, said in a presentation that BP planned to
grow resilient hydrocarbons' earnings before interest, taxes,
dividends, and amortization (EBITDA) within its associated oil,
gas, and refining portfolio until 2025.
The company's new plan is to either grow, sustain, or decrease
such earnings for resilient hydrocarbons over a longer period.
Instead of growing, earnings will remain roughly the same level
they are now, "around $33 billion" a year until 2025.
Between 2025 and 2030, the earnings are expected to increase,
stay the same, or decrease within the $30 billion-$35 billion
range, even while BP continues pursuing cuts of 40% from 2019
levels of oil and gas production.
BP intends to hold oil and gas production levels "broadly flat
through 2030" while investing $7.5 billion a year. During the
earnings call, Chief Financial Officer Murray Auchincloss explained
that the company had updated vague guidance on production goals for
divestments versus natural decline. "What we're now saying is that
decline from 2.2 [million barrels per day to 1.5 million b/d] is
basically going to be gradual divestments over time and that we can
hold the base business flat now, with growing margins," he
said.
Speaking during the call, Looney expected EBITDA for
hydrocarbons to grow even with the 2030 price of oil predicted to
be "broadly flat versus 2021, $71." He explained that the EBITDA
growth would be driven both by growing earnings from oil and gas
and how the refining sector performs.
The company's oil price assumption for 2030 is $60/barrel
adjusted for inflation, higher than in 2020. "So that's a long
story short to say the energy transition could actually result in
higher prices even if it's accelerating as well as obviously result
in lower prices," said Looney.
Auchincloss predicted ongoing oil price volatility, with gas
prices potentially following the same route.
Dev Sanyal, BP's former head of gas and low carbon energy, said
in the presentation in 2020 he expected gas demand to keep growing
and playing a role in the energy transition.
In 2020, BP set out five aims that contribute to its goal of
reaching net-zero carbon emissions by 2050. It aimed to be net-zero
on an absolute basis across its entire operations and in its
upstream oil and gas production by that year.
Now BP has extended its 2050 net-zero goals across not just
production and operations but also the lifecycle GHG emissions of
marketed or physically traded energy products it sells "with the
exception of crude." It previously aimed for a 50% cut in the
carbon intensity of products it sells by 2050. The lifecycle basis
described covers production or extraction, transportation,
processing, distribution, and use of the relevant products.
What's more, the new target now includes a 15-20% cut in the
lifecycle carbon intensity of physically traded energy products
sold.
On the earnings call, Looney said new lower-carbon products like
hydrogen would be traded, and this opens opportunities for BP to
become an IEC.
"The reality is, is that natural gas with renewables, of which
we have both, which we can add a trading organization to, so that
we can provide a customer with that predictable, reliable,
affordable, cleaner supply, there's a role for a company like
that," he said.
"Because people don't want to have to go to somebody for their
renewable power and go to somebody else for their baseload power
and go to somebody else to hedge their pricing and to do all of
these things. There is a one-stop-shop here. It's called an IEC,"
he added.
BP also has a stricter interim, 2030 target for reducing
operational emissions: 50% compared with 30-35% previously.
EV charging, hydrogen, biofuels operations to
grow
In the first transformation plan, BP said by 2030 its investment
in "low-carbon technologies" would increase by around $5 billion a
year, with funds to be channeled to technologies including
renewables, bioenergy, hydrogen, and carbon capture, utilization,
and storage (CCUS).
Now it says investment in "transition growth" businesses will
reach over 40% of capex by 2025 and 50% by 2030, which could see it
spend slightly more, or $5.6 billion on transition growth
technologies, if it keeps spending steady at its projected 2025
capex level.
Specifically, BP said this sum will be focused not just on
renewables, bioenergy, and hydrogen, but now also convenience
stores and electric vehicle (EV) charging. It is also looking into
opportunities to use hydrogen and biofuels in the transportation
sector. For example, BP expects to invest in five major biofuels
projects and sees growth opportunities for biogas in the US,
Europe, and UK.
"As we move from an IOC [integrated oil company] to an IEC and
decarbonize our portfolio, we plan to replicate this model of
integrated energy value chains, combining hydrocarbons now with
electrons [from renewable energy] and hydrogen," said Looney.
Ramping up a 2030 target for EV charging points by 42%, BP will
now install more than 100,000. The major is on track to double
2019's earnings from its convenience and mobility activities to $9
billion-$10 billion by 2030 and sees EV charging as a growth
area.
Hydrogen, BP noted in the update to its transition plan,
"enable[s] additional value creation through integration with
renewables and CCS." BP is currently participating in two hydrogen
projects in Teesside in northeast England: a proposed "blue"
hydrogen project (H2Teesside) and HyGreen Teesside, a green
hydrogen project. In Aberdeen, the company is partnering with the
city to develop Scotland's first scalable green hydrogen production
facility, it said in December..
"BP helped to create hydrocarbon value chains in the UK—in
the North Sea, retail and convenience, and supply and
trading—and now intends to help lead the creation of new
electron and hydrogen value chains," said the company in its
transformation plan update.
Posted 14 February 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability
