Battleground For Oil Majors: BP Activist Investor Calls For Cut In Green Energy Pledges

With the ink barely dry on the COP28 agreement to transition away from fossil fuels, U.K.-based oil major BP plc BP was called on by an activist investor to drop its commitments to clean energy production.

Bluebell Capital Partners, a London-based hedge fund with a small stake in BP, wrote to Chairman Helge Lund in October in a letter that has only just come to light. It said that BP’s pledge to cut oil and gas production by 25% by 2030 had “depressed the value of BP’s share price.”

The strategy comes as a reversal of previous attempts by activist shareholders to engage oil companies, where producers such as ExxonMobil Corp. XOM were called on to reduce their fossil fuel production and engage further in the move towards renewable energy sources.

Indeed, one of the most successful activist campaigns against an oil company was by U.S. hedge fund Engine No. 1 which, in 2021, owned just 0.02% of Exxon, yet managed to secure three board memberships sympathetic to its “Re-energize Exxon” campaign.

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The Tide Turns

But earlier this month, Exxon was heading to court in Texas trying to block moves by activist investor Follow This to get the company to move more quickly on reducing emissions.

Despite the successes of Engine No. 1, the message last year from Exxon and rival Chevron CVX couldn’t have been clearer after both made deals to buy major shale oil and gas producers.

Exxon is paying $60 billion of Permian shale firm Pioneer Natural Resources Co PXD, while Chevron is buying Bakken Shale producer Hess Corp HES for $53 billion.

“With the improving outlook for commodity prices, many majors have discussed ‘portfolio longevity', aiming to give investors confidence in the potential for attractive free cash flow over the coming years,” said Biraj Borkhataria, analyst at RBC Capital Markets.

Exxon said, however, that its acquisition would lower its environmental footprint, and would “accelerate Pioneer's net-zero plan from 2050 to 2035.”

Benzinga spoke with a representative of Bluebell on Monday concerning the October letter to BP, and the hedge fund said it did not expect the oil company to abandon its green energy policies, but was questioning the company’s priorities given the underperformance of the share price and the additional pressures of energy security.

The company did suggest BP should reduce investments in bioenergy, hydrogen and renewables by $28 billion or around 60% between 2023 and 2030. This could be achieved by stopping all investment in renewables “where BP has no right to win,” Bluebell said.

‘Counting On Paris Agreement Failure?’

Does this mean, then, that we’ll see other oil majors come under pressure from activists to reduce their green energy targets, after so much effort to get these companies to endorse them two years ago?

“Environmental pressures, led by the wave of ESG investing, have had a substantial impact on European majors,” said Borkhataria.

“We question the social license for European majors to embark on large-scale M&A, given backlash from certain stakeholders on deals from the U.S. majors, noting that some believe they were ‘counting on the failure of the Paris Climate Agreement’.”

This argument could become a battleground for investors in the coming months — particularly as more merger deals in the sector are expected over the course of 2024.

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