BP will slash oil production by 40% and pour billions into green energy

BP is planning to slash oil and gas production and pour billions of dollars into clean energy as part of a major strategic overhaul unveiled on Tuesday, alongside a huge second quarter loss and dividend cut.

The London-based company said that it plans a 10-fold increase in annual low carbon investments to $5 billion by 2030 as it tries to deliver on its promise of net zero emissions by 2050 and prepares for a world that uses much less oil. BP shares rose as much as 8% in London.

“This coming decade is critical for the world in the fight against climate change, and to drive the necessary change in global energy systems will require action from everyone,” BP said in a statement.

The company expects demand for fossil fuels to fall by 75% over the next 30 years if the increase in global temperatures is limited to 1.5 degrees celsius, or by 50% if warming is less than 2 degrees, BP head of strategy Giulia Chierchia told investors.BP said its oil and gas production will fall by at least one million barrels a day by 2030, a 40% reduction on 2019 levels. The bulk of its annual capital expenditure over the next five years will, however, still be in oil and gas.

A BP Plc logo sits on a totem sign at filling station in Cambridge, U.K., on Monday, June 8, 2020. BP Plc?plans to cut 10,000 jobs as the coronavirus pandemic accelerates the company's move to slim down for the energy transition. Photographer: Jason Alden/Bloomberg/Getty Images

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“We believe that what we are setting out today offers a compelling and attractive long-term proposition for all investors,” CEO Bernard Looney said in a statement.

BP’s plan to pivot away from oil after a century of exploration will involve major investments into bioenergy, hydrogen and carbon capture and storage. It is also targeting 70,000 electric vehicle charging points, up from 7,500 at present. At the same time, BP will reduce its oil and gas refining portfolio and aims to raise $25 billion by selling assets over the next five years.

BP (BP) has already sold its petrochemicals unit, and announced plans to cut 10,000 jobs as it reels from a crash in oil prices and tries to pivot towards renewable energy. The company said Tuesdayit expects restructuring to cost $1.5 billion in 2020.

The coronavirus pandemic has hammered demand for oil, gas and coal, with factories shut, planes grounded and motorists ordered to stay at home. The price of Brent crude fell to an 18-year low in April, dropping below $20 a barrel. It has since recovered to $44 a barrel, but remains 35% down this year.

BP reported a loss of $16.8 billion for the second quarter, as it wrote down the value of certain assets, including untapped oil and gas reserves, because of reducedforecasts for the price of oil.

It cut its dividend by 50% to 5.25 US cents and said it plans to keep payouts fixed at that level in future quarters, while promising to return 60% of surplus cash to investors via share buybacks.

ROTTERDAM, NETHERLANDS - APRIL 23: A general view of BP (British Petrolium) refinery in the Port of Rotterdam which home to other large companies producing petrol, diesel and oil including Guvnor Petroleum, VPR Engery, Exxonmobil, ESSO, Shell and Vopakat which all remain active for business during the coronavirus (COVID-19) pandemic on April 23, 2020 in Rotterdam, Netherlands. Europe's largest port covers 105 square kilometres (41 square miles) and stretches over a distance of 40 kilometres (25 miles). (Photo by Dean Mouhtaropoulos/Getty Images)

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“The board believes setting a dividend at this level takes into account the current uncertainty regarding the economic consequences of the Covid pandemic, supports BP’s balance sheet and also provides the flexibility required to invest into the energy transition at scale,” the company said.

Looney acknowledged that this will come at a cost to investors. “However, it is a decision that we wholeheartedly believe is in the long-term interest of our stakeholders,” he added.

Greenpeace UK described the announcement as a “necessary and encouraging start,” but said BP must go further. “BP has woken up the immediate need to cut carbon emissions this decade,” senior climate campaigner Mel Evans said in a statement.