BP drops to 25-year low a week after unveiling climate strategy

British oil giant's stock closed in London at 232.4 pence, the lowest level since October 1995

Bernard Looney the CEO of oil and gas company BP walks into 10 Downing Street in London, Friday, Sept. 11, 2020. (AP Photo/Matt Dunham)

BP watched its share price drop to a 25-year low, just a week after revealing its plan to turn itself into a clean-energy giant.

Chief executive Bernard Looney and his new management team gave more than 10 hours of presentations over three days last week, in a bid to show the world that the oil and gas giant could adapt to a low-carbon future without sacrificing returns.

BP’s stock closed in London on Thursday at 232.4 pence, the lowest level since October 1995. While falling crude prices and fears of the second wave of the coronavirus didn’t help, the slide suggests shareholders weren’t convinced by Mr Looney’s pitch.

“Investors remain sceptical,” said Mirza Baig, global head of governance at Aviva Investors. “Particularly as this move is being forced on the company by climate change.”

Mr Looney took over as chief executive in February, but the so-called “BP Week” this month was his big moment, designed to put flesh on the bones of a bold plan to become a net-zero energy company by 2050.

It was also an opportunity to persuade shareholders to stick with BP after the company slashed its dividend by half in August.

“What investors are looking for with companies, when they announce big strategic changes of direction of any sort, is compelling answers to three questions: The what, the why and the how?” said Nick Stansbury, a fund manager at Legal & General Group.

At the heart of BP’s reinvention is a reduction in oil and gas production and simultaneous growth in its renewables business.

Mr Looney promised investors he could do this while delivering returns of 8 per cent to 10 per cent. That’s not as high as the double-digit returns oil developments can sometimes bring in, but greater than many clean-energy projects.

Mr Looney talked about BP’s experience, integration, low borrowing costs and trading prowess, but the market is likely to remain sceptical until such returns can be demonstrated in practice, analysts at Redburn wrote in a research note.

“BP’s challenge lies in the building up of its skill set in renewable energy solutions and a competitive advantage in its chosen areas that allows investors to believe they can deliver attractive financial returns from the capital allocated,” said Mr Baig, who strongly supported the company’s net-zero ambition.