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Behind the firewall below

Part 2

The BP board is without a chief executive or a clear strategy. Investors are rightly restive. Lund, who chairs the Danish drugs giant Novo Nordisk as well as BP, saw his approval rating fall from 96.6 to 90.4 per cent at BP’s annual meeting in May, even before the Looney scandal. He will probably get to stay until the next chief executive is chosen, but I suspect he will not limp on for long after that. As he said last year, the chairman is “first among equals”. He should carry the can for the BP board’s failures.

The senior independent director, National Grid’s Paula Rosput Reynolds, is nearly timed out under the nine-year rule. In terms of a successor to Lund, Amanda Blanc may be one to watch. She is already on the BP board as a non-executive — and her experience of carrying out a turnaround at Aviva may prove useful.

BP’s chairman is sliding away on a slick of poor decisions

Helge Lund had two missions: to transition the oil major to a new chief executive and steer it to a greener future. Both tasks have gone awry

has said he took over as chairman of BP in 2019 with two big transitions to handle. One was from Bob Dudley, the oil major’s boss of a decade, to a new chief executive. The other was from a company based on hydrocarbons to one with interests in technologies of the future — electric car charging, offshore wind, solar etc. “The thing that convinced me to do it was that if you’re successful in the transition of BP, you not only transform and change BP, but you impact a whole industry and eventually have an impact also on how the world is attacking the climate challenge,” he told me last year.

Both transitions have now veered badly off course. BP’s Greenpeace-approved 2020 plan to slash production of oil and gas by 40 per cent, and develop 50 gigawatts of renewables by 2030, partially unravelled as it was wrongfooted by the commodities rally after Russia’s full-scale invasion of Ukraine. BP scaled back its promised cut in fossil-fuel output to 25 per cent, displeasing both sides of the debate — net-zero evangelists saw it as backsliding, while shareholder-value mavens thought it didn’t go far enough.

The numbers tell a sorry story. BP is by far the weakest performer of seven quoted global energy giants since the date of Dudley’s handover to Bernard Looney, according to broker AJ Bell. Its 24.3 per cent total return (including distributions) is half that of Shell and less than a fifth of the 125.5 per cent spewed out by America’s ConocoPhillips. There is speculation that it could attract an activist investor or even a takeover bid.

As for the Looney transition, we know how that went. The photogenic upstream man slipped up by giving the board an “incomplete” account of his extracurricular activities and left in September. Having for some reason taken three months to decide that this amounted to serious misconduct, the non-executives stripped him of £32.4 million in pay last week, most of it in the form of unvested bonus shares. Finance director Murray Auchincloss has taken over on an interim basis.

Judged by his own two starting criteria, Lund’s career at BP is now on the slide. Both the problems that have blown up this year were avoidable. The euphoria around net zero when the oil price crashed and renewables valuations soared in the early stages of Covid was unlikely to last. And better due diligence on Looney might have turned up evidence of his many workplace affairs, which were common knowledge in BP’s St James’s headquarters.

Good morning Clued.

I think you are right. If the US are serious about net zero/renewable energy especially offshore wind then they will need to pay for it like the rest of the world. The New your authority's refusal to increase the power purchase agreements is not the end of the matter just the beginning of renegotiation. I expect this to be a global for all licensing.

If investors felt aggrieved by BP's $540 write down then check out Orsted's !!. On write downs, I feel that there was much unnecessary negatively at Q3 results from analysts and posters due to BP's write down. There is a big difference from a write down in value to a write off. Rosneft is a write down in value. Its still worth $20 billion.

Let's see how things progress

An interesting article on the current state of play below.

U.S. offshore wind sector 'fundamentally broken' - BP exec | Reuters

https://www.reuters.com/business/energy/bp-low-carbon-boss-calls-us-offshore-wind-industry-fundamentally-broken-2023-11-01/

Have a great day

Mark

Price paid for offshore power to rise by 50% - BBC News

https://www.bbc.com/news/business-67430888

Evening all

After unsuccessful lobbying for an increase in the US, resulting in a $540 write down for US offshore wind licences, BP and others have been successful in lobbying the UK government for the same. Let's hope the Europeans and others will follow suit.

Here, here Halma

I topped up a bit too early myself yesterday but predicting the current market is impossible with so many economic variables. The fluctuations in oil prices due to the tug of war between demand and supply and an evaporated middle east crisis premium is driving the current share price volatility but one thing is for sure by all metrics, BP is way undervalued at this temporarily low price.

Https://seekingalpha.com/article/4647993-bp-struggles-hide-strong-cash-flow

It is with deep regret that I have to announce the return of y11-shx after a too short period of remission. Symptoms of delirium, confused thinking and a pain in the butt are to be expected.

Apologies

Correct full article address

https://www.rigzone.com/news/shell_prefers_share_buybacks_over_big_acquisitions_ceo-06-nov-2023-174592-article/

Good afternoon all

Further to the earlier posts on BP/Shell possibilities. A link to the full article below.

Shell Prefers Share Buybacks over Big Acquisitions: CEO

November 06, 2023

Shell PLC’s capital deployment strategy favors repurchasing company stocks more than absorbing rivals, chief executive officer (CEO) Wael Sawan has said, in contrast to USA competitors Chevron Corp. and Exxon Mobil Corp.

Reporting a 23 percent quarter-on-quarter increase in adjusted earnings to $6.2 billion for the third quarter, the British energy giant said it has approved a buyback program for the next three months amounting to $3.5 billion. That brings its share redemption program for the second half of 2023 to $6.5 billion and total announced stockholder distributions for the year to about $23 billion.

Shell's capital deployment strategy favors repurchasing company stocks more than absorbing rivals.

Image by Robert Way via iStock

“If we then look at how we want to be able to deploy capital, our preference right now is to continue to buy that very attractive asset base that we have, and the free cash flow yield that is also a very healthy free cash flow yield”, Sawan, who took over as Shell boss at the start of 2023, said in a question and answer session with analysts.

Shell posted $0.93 in adjusted earnings per share for the July–September 2023 quarter. Its free cash flow stood at $7.51 billion for the latest three-month period, with $12.33 billion generated from operating activities, the London-based company announced Thursday.

It recorded $5.65 billion in cash capital expenditure and $10.1 billion in operating expenses.

USA rival Chevron earlier reported $3.05 in adjusted earnings per share. The San Ramon, California-based company had $5 billion in free cash flow, compared to $4.7 billion capital expenses, according to its quarterly report October 27.

Another American major, ExxonMobil, reported the same day $2.25 earnings per share. It recorded $16 billion in free cash flow and $5.2 billion in capital expenditure.

Earlier in October Spring, Texas-based Exxon Mobil announced it was acquiring Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion.

“The merger combines Pioneer’s more than 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, creating the industry’s leading high-quality undeveloped U.S. unconventional inventory position”, said a joint press release October 11.

“The merger is anticipated to be accretive immediately and highly accretive mid- to long-term to ExxonMobil earnings per share and free cash flow, with a long cash flow runway”, ExxonMobil added. “ExxonMobil’s strong balance sheet combined with Pioneer’s added surplus free cash flow provides upside opportunity to enhance shareholder capital returns.

https://www.rigzone.com/news/shell_prefers_share_buybacks_over_big_acquisitions_ceo-06-nov-20

Good afternoon all

Further to the earlier posts on BP/Shell possibilities. A link to the full article below.

Shell Prefers Share Buybacks over Big Acquisitions: CEO

November 06, 2023

Shell PLC’s capital deployment strategy favors repurchasing company stocks more than absorbing rivals, chief executive officer (CEO) Wael Sawan has said, in contrast to USA competitors Chevron Corp. and Exxon Mobil Corp.

Reporting a 23 percent quarter-on-quarter increase in adjusted earnings to $6.2 billion for the third quarter, the British energy giant said it has approved a buyback program for the next three months amounting to $3.5 billion. That brings its share redemption program for the second half of 2023 to $6.5 billion and total announced stockholder distributions for the year to about $23 billion.

Shell's capital deployment strategy favors repurchasing company stocks more than absorbing rivals.

Image by Robert Way via iStock

“If we then look at how we want to be able to deploy capital, our preference right now is to continue to buy that very attractive asset base that we have, and the free cash flow yield that is also a very healthy free cash flow yield”, Sawan, who took over as Shell boss at the start of 2023, said in a question and answer session with analysts.

Shell posted $0.93 in adjusted earnings per share for the July–September 2023 quarter. Its free cash flow stood at $7.51 billion for the latest three-month period, with $12.33 billion generated from operating activities, the London-based company announced Thursday.

It recorded $5.65 billion in cash capital expenditure and $10.1 billion in operating expenses.

USA rival Chevron earlier reported $3.05 in adjusted earnings per share. The San Ramon, California-based company had $5 billion in free cash flow, compared to $4.7 billion capital expenses, according to its quarterly report October 27.

Another American major, ExxonMobil, reported the same day $2.25 earnings per share. It recorded $16 billion in free cash flow and $5.2 billion in capital expenditure.

Earlier in October Spring, Texas-based Exxon Mobil announced it was acquiring Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion.

“The merger combines Pioneer’s more than 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, creating the industry’s leading high-quality undeveloped U.S. unconventional inventory position”, said a joint press release October 11.

“The merger is anticipated to be accretive immediately and highly accretive mid- to long-term to ExxonMobil earnings per share and free cash flow, with a long cash flow runway”, ExxonMobil added. “ExxonMobil’s strong balance sheet combined with Pioneer’s added surplus free cash flow provides upside opportunity to enhance shareholder capital returns.

https://www.rigzone.com/news/shell_prefers_share_buybacks_over_big_acquisitions_ceo-06-nov-2023-

Exploration

"I’m surprised no-one comments on the ‘methane from rubbish dump’ project."

A comment on the rubbish dump project !

Recently, BP’s renewable natural gas (RNG) plant in Medora, Indiana, went into operation. The plant is part of Archaea Energy, the largest RNG producer in the United States, which BP acquired in December last year. It is reported that this RNG plant can process 3,200 cubic feet of biogas into RNG per minute. According to BP, the plant will be able to heat approximately 13,000 homes per year once it is put into operation.

Excellent points meoryou

Really interesting views since results day with opinion against the current board and the transition strategy and calls for a renewed focus on the hydrocarbon business but here are some numbers to consider

Last quarter for every £20, BP returned £9 to shareholders through dividends and buybacks. Invested £11 in the hydrocarbon ( O&G) business and invested only £1 on low carbon investments.

This gives a little perspective to the real priorities of the board.

Good morning all.

From The Times

BP adrift after loss of skipper

Wednesday November 01 2023, 12.01am,

America’s energy majors have placed their bets. The deals they have sealed show they believe demand for oil will be healthy far into the future. Shell’s boss has signalled a tilt back towards hydrocarbons. BP is in limbo.

Without a permanent boss, uncertainty hangs over whether the FTSE 100 group will stick with the pivot towards renewables started by Bernard Looney, the chief executive who abruptly resigned in September, or row back in the hope of reviving an underperforming share price.

An enterprise value of just 3.4 times forecast earnings before interest, taxes and other deductions puts BP at a discount to big US peers as well as European counterparts TotalEnergies and Shell.

Missing third-quarter profit expectations has added more pressure. Underlying replacement cost profit of $3.3 billion was below the $4 billion consensus figure, a disappointment largely stemming from its gas trading division. It comes after several quarters of heightened volatility that had subsided recently.

Last month saw two megadeals in the industry, with Chevron agreeing its biggest ever acquisition in the US independent oil and gas company Hess, and ExxonMobil’s $60 billion bid for the Texas-based exploration group Pioneer Natural Resources. Murray Auchincloss, BP acting chief executive, said that no major M&A within the US energy market is on the cards for BP to ramp up capacity.

He points to projects that put 36 billion barrels of oil equivalent in the hopper, 18 billion of which are economic right now. That is enough to see BP’s underlying production grow to 2025 and adjusted earnings from oil and gas to hit between $30 and $32 billion, and stay at that level to the end of the decade.

A plan to distribute 60 per cent of surplus cash back to shareholders saw another $1.5 billion share buyback declared alongside third quarter results. That was alongside a 7.27 cent-a-share dividend.

• BP shares lose their spark after ‘weak’ performance by gas traders

Current capital return plans look sustainable, even if commodity prices falter. The dividend can be held, based on oil at $40 a barrel, and raised at an annual 4 per cent with oil at $60. Likewise, share buybacks of $4 billion are on the table this year while Brent Crude is around $60 a barrel, below the average realised price of $86.75 in the third quarter.

Surplus cash amounted to $3.1 billion in the third quarter and just over $5 billion so far this year. Analysts think BP will be able to sustain free cashflow of between $9 billion and $13 billion out to 2027, including $13.8 billion this year. The rest of the extra cash will go towards paying down debt, $22.3 billion at the end of September. That is already down by around a third over the last decade. The group is reaching for an improved “A” investment grade credit rating, which analysts at RBC Capital reckon it

Continued from The Times

BP adrift after loss of skipper

...That is likely to prompt investors to start thinking about an increase in the cash payout ratio next year, the investment bank thinks. That would be one catalyst for the shares. Another, naturally, would be the announcement of a permanent boss and a better idea of whether BP will join its peers and allocate more of its capital to hydrocarbons.

Capital expenditure is expected to come in at the lower end of this year’s $16 billion to $18 billion target range. That is the result of some potential acquisitions “not meeting returns thresholds”, according to Auchincloss. It is plausible that potential deals now on ice are those in the low carbon sector, analysts at RBC Capital say, where valuations are harder to justify as interest rates have rapidly risen.

A fall in BP’s shares on the back of the Chevron and Exxon deals is a telling sign that the energy major remains vulnerable to a takeover tilt.

Advice. Hold

Why. The shares are cheap but there is a lack of strategic clarity

The $540 impairment charge for the three New York wind projects has raised concerns over possible future impairments. If I recall correctly, this was due to BP's rejected request for an increase in the power purchase agreements due to the effects of inflation etc making the projects unviable. We will have to wait and see if this a one off or a repetative concern going forward.

This is obviously a concern of the ' professional ' analysts...

"Michael Hewson, chief market analyst at CMC Markets argued that alongside boardroom uncertainty, investors are wary over its transition plans, with BP adopting a more aggressive approach to the energy transition compared to its competitors.

“That’s down to management and it rather begs the question as to whether any new chief executive will persevere with the ‘Performing while Transforming’ of Bernard Looney, because while it is clear that BP is transforming, it certainly isn’t performing,"

Just for information....

BP was downgraded to underweight from neutral at JPMorgan

BP was downgraded to underweight from neutral at JPMorgan, following the oil major’s third-quarter results. “This year is revealing BP’s cashflows as increasingly leveraged to wider standard deviation variables – notably trading and working cap,” said analysts led by Christyan Malek. Its price target was cut to 550 pence ($40.02 per U.S. listed share) from 615 pence, and the analysts said they have a clear preference for Shell SHEL and TotalEnergies TTE. The analysts also say there’s the potential for further, renewables-led clearing of the decks, as well as the rise the fourth-quarter buyback may be scaled down to $1 billion.

Good morning all

Well done to all those investors who have timed the market well. I am very confident that you will be handsomely rewarded over the next few quarters.

Mark

BP misses Q3 top and bottom line estimates; extends share buyback

Oct. 31, 2023 3:30 AM ETBP p.l.c. (BP), BPAQFBy: Meghavi Singh, SA News Editor

BP (NYSE:BP) reported weaker than expected profits of $3.3B for the Q3 after a large drop in energy prices from a year ago, and the company extended its $1.5 billion share repurchase programme.

Q3 Non-GAAP EPADS of $1.15 misses by $0.19.

Revenue of $54.02B (-6.6% Y/Y) misses by $2.64B.

It also announced a further $1.5 billion share buyback.

Operating cash flow $8.7B; Net debt reduced to $22.3B.

Capital expenditure in the third quarter was $3.6 billion.

Outlook: bp now expects capital expenditure, including inorganic capital expenditure to be around $16 billion in 2023.

4Q23 guidance: Looking ahead, we expect fourth-quarter 2023 reported upstream production to be broadly flat compared to third-quarter 2023.

2023 guidance: bp expects both reported and underlying upstream production to be higher compared with 2022.

bp continues to expect four major project start-ups during 2023.

bp continues to expect the depreciation, depletion and amortization to be slightly above 2022.

bp continues to expect the underlying ETR for 2023 to be around 40%.

For 2023 bp continues to intend to allocate 40% of surplus cash flow to further strengthen the balance sheet.

bp continues to expect to be able to deliver share buybacks of around $4.0 billion per annum, at the lower end of its $14-18 billion capital expenditure range, and have capacity for an annual increase in the dividend per ordinary share of around 4%.

bp has increased its 2030 Adjusted EBITDA aims for resilient hydrocarbons and group by $2 billion to a range of $41-44 billion and $53-58 billion respectively

9th October 2023

OPEC said it expected world demand to reach 116 million barrels per day (bpd) by 2045, roughly 6 million more barrels per day than it predicted this time last year.

IEA have a consistent historical record of incorrect predictions. They move the peak oil horizon periodically on narrow data.

https://www.cnbc.com/2023/10/09/oil-opec-raises-global-crude-demand-outlook-through-to-2045.html

I have more faith in Opec's global database.