Showing posts with label carbon budget. Show all posts

Thursday, September 3, 2020

Strategic CSR - BP (II)

This newsletter follows-on from Tuesday's newsletter about the write-downs BP and other fossil fuel companies have made recently due to lower anticipated future oil prices and the likelihood they will be unable to extract all of the oil they currently report as reserves. This second article about BP, in the url below, looks at how the company is reacting to this new reality. Specifically, it details the beginnings of a shift away from a reliance on fossil fuel driving revenues toward a business model that gives significantly more weight to renewable energy:

"On a webcast with analysts [BP CEO, Bernard] Looney described a transformation plan that Stuart Joyner, an analyst at the market research firm Redburn, said in a note to clients was 'major, positive, thoughtful and largely unexpected.'"

More specifically, the CEO was rationalizing the new competitive environment he perceives BP faces in light of the firm's commitments on future carbon emissions:

"Mr. Looney, though, was more specific in his investment goals, saying that he intended for BP in a decade to be investing around $5 billion a year in renewable energy like wind, solar and hydrogen, a clean-burning gas, about 10 times the current amount. BP's capital spending is likely to be about $12 billion this year."

Further:

"He said that he wanted to reduce oil and gas production by about 40 percent in that time frame. As part of the shift, BP, whose origins date back to the discovery of oil in Iran in the early 20th century, would not enter any new countries to explore for oil and would also pare back its refining by about one-third, Mr. Looney said."

It is the commitment to cutting oil and gas exploration and extraction that is so notable, and something that might create pressure on other energy firms to match. BP's history of commitments in this area, however, has not been forgotten. The concern is twofold – first, that the firm intends to sound more serious than it actually is and, second, that any deception will lay the foundation for future disasters, as was the case with Deepwater Horizon in 2010:

"BP has aspired to be a different kind of energy company before. In 2000 it adopted the slogan Beyond Petroleum, though early forays into renewable energy lost momentum after the 2010 Deepwater Horizon accident in the Gulf of Mexico."

In order to achieve its goals, Looney is committing BP to focus on electricity generation and invest heavily in renewable energy:

"By 2030 BP plans to have about 50 gigawatts of renewable generating capacity, roughly equivalent to fifteen large modern nuclear power stations."

Given that BP under Looney has committed to achieve "net zero" emissions only by 2050 and that "cash from oil and gas will fund investment," this shift is going to be insufficient in itself. But, it is a beginning, and BP is the first of the fossil fuel companies to even contemplate what this new reality looks like.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

After Loss, BP Vows to Diversify Beyond Oil

By Stanley Reed

August 5, 2020

The New York Times

Late Edition – Final

https://www.nytimes.com/2020/08/04/business/energy-environment/bp-renewable-investment.html

Tuesday, September 1, 2020

Strategic CSR - BP (I)

This week's newsletters will focus on a couple of recent articles about BP. The first of these articles, in the url below, is interesting because, at the time, it was the first announcement I had seen by a major fossil fuel company (in this case, BP) that it is writing down a substantive amount of its oil reserves:

"BP sent a signal to investors … that the economic shock of the pandemic would reverberate for years, and that less gas and oil would probably be needed in the future. The London-based oil giant told shareholders the company expected to write down as much as $17.5 billion of its oil and gas holdings in its next quarterly report."

I think the article is important because this write-down is not merely because the firm's current reserves are worth less (due to a drop in global demand, which has caused a significant drop in the price of oil), but also because the firm fully expects to leave some of those reserves in the ground:

"With the write-down, which could amount to as much as 12 percent of the previous book value of the oil and gas assets, [CEO, Bernard] Looney, 49, is preparing the company for a future in which it will produce less fossil fuel than previously expected. It is likely to be the largest write-down since 2010, when the company recorded a $32 billion hit related to the Deepwater Horizon disaster in the Gulf of Mexico."

This is a dramatic turnaround from only a short time ago, when investors were rewarding new discoveries of oil, irrespective of the debate around climate change, with the full expectation that those reserves would be extracted:

"In past years, companies rushed to acquire oil and gas fields and bring the crude or natural gas to market. Now, analysts say, investors are skeptical of all but the most profitable investments in fossil fuels because it is not clear that there will be demand for them — especially as many governments strive to meet the requirements of the 2015 Paris agreement on global warming."

Specifically:

"The write-downs are being taken for two reasons. BP has cut its long-term expectations of oil and gas prices by about 30 percent, to $55 a barrel for oil, a move that reduces the value of its assets. The company is also writing off resources, in places like the Gulf of Mexico and Canada, that it has on its books but may decide not to develop over the coming decades."