BP discloses a £3.7bn loss due to failed net zero transition

BP’s Shift Toward Green Energy Results in Major Financial Losses

BP is set to incur a financial charge of $5 billion (£3.7 billion) after its attempt to transition to net zero emissions did not succeed as planned.

The energy giant disclosed this significant write-down in a recent trading update, which led to a drop of up to 1% in its share price during early market activity.

According to BP, these losses are mainly linked to its gas and low-carbon energy divisions.

This announcement follows BP’s decision to scale back its costly net zero ambitions, a move influenced by shareholder pressure to reconsider its strategy.

Background: A Strategic U-Turn

In 2020, then-CEO Bernard Looney introduced a bold plan to cut BP’s oil production by 40% and achieve net zero carbon emissions by 2050, setting the company apart from its competitors.

However, this transition to renewable energy did not deliver the expected results, and BP’s stock performance lagged behind its peers. Since Looney’s departure in 2023, the company has gradually moved away from his vision.

Scaling Back Green Investments

BP has cancelled plans for biofuel facilities in Rotterdam and Lingen, sold ten onshore wind farms in the United States, paused investments in offshore wind, and announced intentions to divest most of its interest in solar company Lightsource.

Additionally, BP has withdrawn from planned hydrogen projects in the UK.

Maurizio Carulli, an energy analyst at Quilter Cheviot, described these impairments as a consequence of BP’s earlier, controversial push into renewables.

Leadership Changes and New Direction

Last month, BP unexpectedly removed Murray Auchincloss from the CEO position after less than two years, appointing Meg O’Neill as the company’s first female chief executive.

O’Neill is known for her firm stance on climate policy and brings extensive experience from her previous role at ExxonMobil. Earlier this year, she criticized younger generations for their opposition to the fossil fuel sector, calling out what she saw as hypocrisy.

Her leadership coincides with new chairman Albert Manifold’s efforts to accelerate BP’s return to a focus on oil and drive a turnaround, following criticism from activist investors like Elliott Management over the pace of change under Auchincloss.

O’Neill will become BP’s third CEO in just two and a half years when she officially steps into the role in April.

Financial Outlook and Market Conditions

BP announced it expects to record a $4 billion to $5 billion impairment related to its transition-focused businesses.

While the company is steering back toward fossil fuels, BP and its FTSE 100 peer Shell both warned of weaker oil trading results due to falling crude prices at the end of last year.

On a positive note, BP reported further reductions in its debt, with net debt dropping to between $22 billion and $23 billion by year-end, down from $26.1 billion at the close of September.

Looking Ahead

BP is scheduled to release its fourth-quarter financial results on February 10.