BP’s overhaul can start with a new chair

17 Feb 2025

BP faces mounting pressure from activist investor Elliott to overhaul its strategy and divest assets for better performance.

By Yawen Chen

BP has a laundry list of problems. The $93-billion UK oil major has a confused strategy, an overleveraged balance sheet, and a valuation way adrift of its main rivals. Given it also now has an activist investor - Elliott Investment Management - with a 5% stake, some sort of structural change looks likely. The right place to start, however, is with chair Helge Lund.

The Norwegian executive, who took up his role in January 2019, has had a troubled tenure in which BP’s total return has only amounted to 30%, compared to 53% and 119% for rivals Shell and Exxon Mobil, per LSEG data. He promoted BP insider Bernard Looney to the top job in 2020, and then backed the new CEO’s strategy to pivot strongly to low-carbon energy and cut oil output 40% by 2030 compared to 2019. Neither man bears sole blame for this plan going awry – the wheels came off after Russia’s 2022 invasion of Ukraine sent oil prices soaring. But it’s on Lund that BP lacked a ready-made replacement for Looney when the CEO left in September 2023 having failed to adequately disclose his personal relationships at work.

Lund also has a case to answer for what happened next. Before quitting, Looney watered down his plan by calling only for a 25% fall in oil production by 2030. This left BP stuck between two stools with investors – not as green as before, but not as strategically straightforward as more highly valued, oil and gas-focused rivals like Exxon Mobil. And when the board finally appointed Looney’s chief financial officer Murray Auchincloss to replace him in January 2024, the new boss compounded the sense of drift by committing to a strategy that was less of a green rethink than his counterpart Wael Sawan’s at Shell. BP even recently upped its stakes in solar and biofuel joint ventures.

According to a person familiar with the situation, Elliott wants BP to cap green spending, ditch renewable energy capacity targets, and sell off its wind and solar power generation business and potentially its Castrol lubricants, service stations and EV charging units too. If the group offloaded these it might raise $4-billion, according to a Breakingviews sum-of-the-parts analysis, and create a pot of cash that could then be deployed to reduce debt and maintain cash payouts to investors. All told, Breakingviews’ model implies BP could be worth over 50% more than its valuation prior to the disclosure of Elliott’s stake.

For the time being, the activist is not calling for either Lund or Auchincloss’s head. One reason why may be speed. Assuming Auchincloss’s pre-existing “fundamental reset” in strategy due on February 26 incorporates most of Elliott’s recommendations, things might happen more quickly if the current CEO and chair stick around.

But having already presided over various U-turns, Lund lacks the credibility to oversee yet another one. Since he took the job, BP shares have fallen 15%, compared to a 13% and 56% gain for Shell and Exxon respectively before the Elliott bid was made public. And BP trades at only 3 times its 2025 EBITDA, per Visible Alpha. Investors might see his departure as a decisive sign that BP has changed course.

A new chair could get to work refreshing a board in which 9 of the 12 members predate the 2022 oil price surge that derailed the current strategy. The fact that Lund also chairs Denmark’s $265 billion Novo Nordisk suggests he has too much on his plate. It might be time to free both him and BP up.

CONTEXT NEWS

Elliott Investment Management has built a near 5% stake in BP and is pushing the oil company to take radical action to transform its performance, including a big divestment programme, a source familiar with the matter told Reuters on February 13.

Elliott is engaging with the company in advance of its Capital Markets Day, scheduled for February 26, which it sees as a critical event, the person said.

“Building on the actions taken in the last 12 months, we now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns, ” BP CEO Murray Auchincloss said in a statement along with the release of BP’s 2024 results on February 11. “It will be a new direction for BP and we look forward to sharing it at our Capital Markets Update on February 26."

Elliott’s stake in BP was first reported by Bloomberg News on February 8. BP has risen over 6% to 461 pence a share as of 1009 GMT on February 14, since market close on February 7. DM

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

Editing by George Hay and Aditya Srivastav

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