Bloomberg article11 Jul 2024 11:48
Murray Auchincloss had a clear message to his shareholders days after becoming chief executive officer of BP Plc: “I'm focused on growing the value of BP.” Nearly six months since his promotion, however, the promised improvement is nowhere to be seen.
BP’s market value this week fell to a two-year low of roughly £75 billion ($96 billion). Worse, the company is worth today about the same as it was 25 years ago, when oil changed hands at $10 a barrel, rather than today's price of more than $80 a barrel. BP is a shadow of the mighty oil behemoth it once was.
It would be unfair to blame Auchincloss — who celebrates six months on the job next Wednesday — for all the problems. Some predate him, particularly the cost of cleaning up 2010’s US Gulf of Mexico spill. Yet the Canadian executive isn’t new to BP’s upper echelon. He was chief financial officer from mid-2020 until his promotion in January, and as such, key to the green strategy that the company adopted four years ago.
What’s not unfair is to highlight that Auchincloss’ business-as-usual attitude, his insistence that “our destination is unchanged,” is unnerving many investors. BP’s shares have underperformed all its rivals, in some cases by a large margin. Profit is weak, and the debt load remains high. By now, there should be an all-hands-on-deck emergency at BP’s St James’s Square headquarters. If there is, shareholders haven't heard about it.
Another worrying perception among investors and industry observers is that Auchincloss is an accidental CEO — he stepped into the job after BP’s board fired his predecessor, Bernard Looney, for “serious misconduct”— rather than one who sees his role as reshaping the company for the longer term. Perhaps that perception is erroneous. Certainly, Auchincloss isn’t a brash executive à la some American oil tycoons, but that doesn’t mean he isn’t 100% in charge. Thus it's urgent he shows he has the chops to redo BP. Insisting that the destination is unchanged, barring some tweaks, won’t help — because I believe the British oil major is on borrowed time. High debt combined with oil price cyclicality are big enemies.
BP is the most indebted compared to its size and cash generation among the Big Oil companies — a group that includes Exxon Mobil Corp., Chevron Corp., Shell Plc and TotalEnergies SE. On a cash generation-to-debt basis, BP stood at nearly 40% at the end of 2023, well below its international peers, each reporting more than 75% on the same date, according to data compiled by S&P Global Ratings. The credit rating firm recently cut its view on BP to “stable” from “positive.”
Until now, the indebtedness hasn’t mattered as much because Russia’s invasion of Ukraine in 2022 triggered a super spike in oil and natural gas prices, as well as boosted refining margins. On top, the price volatility of 2021-2023 created rewarding trading opportunities — a corner of the m
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