Barclays, in a note, has looked at the polarising debate around the role of ‘Big Oil’ amid rising unrest and protest over climate change.
It is, perhaps, particularly timely to look at BP which ten years after the Macondo oil spill is undergoing strategic change with a handover in senior management, with head of exploration Bernard Looney replacing Bob Dudley as chief executive in February.
Presently, BP is spending less than its peers on ‘decarbonisation’ efforts, but, according to Barclays, it is spending that money better than its rivals - even if the company could do more.
This matters for investors because the perceptions among environmentalists is understood to weigh on the share price, and, it is increasingly difficult for certain investment funds and managers to put other people's capital into carbon-centred businesses.
“Optically BP is spending a lower proportion of its capex on low carbon than its main EU competitors, yet BP is using its capex differently, employing a more venture-led approach, such as with solar JV, Lightsource,” said analyst Lydia Rainforth.
“We don’t think BP gets enough credit for the progress it is making given the company already has the largest installed renewables base of the group, has reduced customer emissions per unit of capital employed by 35% since 2010, and if we were to value renewables as renewables we think this could be worth US$8-10bn (c35p/sh).
“Yet the perception issue has a real impact on stock performance and winning over sceptical generalists, millennials and Gen Z needs a better approach to communication and ultimately more spending.
Perceptions are arguably also skewed somewhat more given that BP’s massive Macondo oil spill in the Gulf of Mexico is perhaps the most tacit and available example in the memory of the millennial and Gen Z cohorts presently protesting against carbon-based industry.
Compensation and reparation are, plainly, not the same as proactive investment into environmental causes, nonetheless, BP has forked out an awful lot of cash on ‘clean-up’ since the disaster in April 2010.
Estimates put the outlay by BP at some US$75bn, covering both clean-up, compensation and lawsuits.
A profitable low-carbon future?
Looking to its future, meanwhile, Barclays analysts note that BP will need to define its low-carbon strategy for the next decade to help improve broader perceptions.
Focussing inward, on the business, the analysts reckon BP needs to continue its drive for productivity improvements, deliver the company’s 2021 targets and improve cash returns to shareholders.
Decisions are needed, Barclays emphasised.
“BP has already presented a scenario for its upstream business to 2025 that could see it grow free cash flow from that business by 50% 2025 vs 2021.
“According to the management team, that can be achieved with the existing capex budget of US$13-14bn a year.
“Whilst attractive on a stand-alone basis, as we highlight above, shareholders may be better served in reducing the capex allocated to this.”