Bernard Looney’s exit throws BP’s strategy into doubt

Bernard Looney’s sudden resignation as chief executive of BP has cast greater doubt over the energy company’s strategy, with investors watching closely to see who takes over the top job for clues.

Looney, who stepped down on Tuesday after admitting he had failed to disclose the extent of past relationships with colleagues, had positioned BP as a leader in the energy transition, at least among the traditional oil majors, going further than peers in the company’s commitments to invest in renewable energy.

But while some investors embraced the bold strategy, launched in 2020 shortly after he took over, others have long harboured doubts.

“We think investors have remained unconvinced on the strategic shift,” said Biraj Borkhataria at RBC Capital Markets. “The bottom line is that the world has clearly changed since Bernard took over as CEO.”

BP’s shares have lagged behind its competitors, particularly in the US where ExxonMobil and Chevron have been slower to embrace the energy transition. Meanwhile, UK rival Shell has become less apologetic about its role in tackling climate change as an oil and gas company under new chief executive Wael Sawan.

Redburn Atlantic, the equity research group, wrote: “Looney’s successor will face a difficult question. Stick with the strategy to transform BP into a broader energy company and transition leader. Or switch the focus back towards higher-return oil and gas operations.”

Not all agree. Adrian Frost, an investment manager at Artemis, a top-25
shareholder in BP, said that the nature of Looney’s resignation — over
past relationships with colleagues and disclosures to the board rather than a strategic disagreement — suggested the board should be seeking a “continuity candidate” that would not herald any great change in BP’s strategy.

But whoever takes over will want to leave their imprint on the company and its direction, which could see either a greater commitment to renewables or a renewed focus on maximising the most profitable parts of the business.

Leading among the runners and riders for the top job is Murray Auchincloss, who served as chief financial officer until this week, and has been appointed interim chief executive.

The 53-year-old Scot is well liked by investors and is credited with being across the details of the business, having served as a useful foil for Looney’s salesman-esque side.

“He [Looney] was a good ambassador for the company but lacking when you got down into the weeds,” a top-25 shareholder said.

Giacomo Romeo, at Jefferies, said Helge Lund, BP’s chair, may also be in the mix as a former chief executive of Norway’s Statoil (now Equinor) and BG Group.

People close to the Norwegian executive, also chair of Danish drugmaker Novo Nordisk, have distanced him from the chief executive role, however. The blot of having overseen the appointment of Looney fewer than four years ago may count against him.

BP could appoint its first female chief, with Carol Howle — head of the company’s powerful trading and shipping arm — seen as a potential frontrunner, alongside Anja-Isabel Dotzenrath, who runs BP’s gas and clean energy business.

Experience in the trading business is seen as important within the company as it stitches together many of the disparate parts of its operations, from production to refining, as well as being a huge profit centre. It is also viewed as critical to maximising future returns from renewable projects such as offshore wind and solar in the future.

Oswald Clint, analyst at Bernstein, said Gordon Birrell — head of production and operations — and Emma Delaney — head of customer and products — would also be in the race, emphasising all the main internal candidates were “fully invested in the current strategy”.

Romeo at Jefferies said, however, that BP could break with tradition and go for an external hire.

Maarten Wetselaar, head of Spanish refiner Cepsa, could be an option, according to analysts. He lost out to Sawan in the race to become Shell chief. “Whilst an external appointment would be unusual, the situation is an unusual one in and of itself,” said Redburn Atlantic.

The case for an external candidate may be bolstered by the fact that three of the last four BP chief executives have left under strained circumstances. Lord Browne resigned in 2007 after lying to a court over how he met his partner and Tony Hayward stepped down in 2010 following his response to the Gulf of Mexico oil spill.

Bob Dudley, the only recent chief executive who was not a BP lifer (having joined through the Amoco merger in 1998), served 10 years before stepping down in 2020.

The board itself may face questions from investors over its processes and how it investigated Looney’s personal relationships with colleagues before his appointment and during his stint as chief executive. A 2022 review into the executive had concluded he had not breached the company’s code of conduct.

Romeo at Jefferies said Looney’s departure could “reignite” speculation over whether BP might be a potential takeover target for one of its rivals.

While BP’s market capitalisation of $111bn is substantial, rivals may believe its assets could earn a higher valuation from shareholders under new management. The industry is cash-rich, with oil prices moving above $90 a barrel this month.

That rise in oil prices, and the wider energy crisis sparked by Russia’s invasion of Ukraine, has coincided with a wider retrenchment in ESG investing.

BP also has unfinished business in Russia. While it wrote off the value of its near-20 per cent stake in Rosneft, Russia’s state-backed oil champion, shortly after the full-scale invasion of Ukraine, it technically still owns it. A sale has been complicated by the need to seek approval from the Kremlin, and dividends have been mounting up in an escrow account.

Analysts at Redburn reckon the oil industry will need to stick to some of its commitments to decarbonisation to “maintain their ‘societal licence’.” “However, there is scope to alter the trajectory of transition, 2050 is a long way away after all,” they added.