Supermajor BP plc, the top natural gas marketer in the United States and one of the world’s largest producers, on Wednesday said it is tossing aside the autonomous upstream and downstream business distinctions as it moves to become a net zero company “by 2050 or sooner.”
The London-based operator’s new mission, supported by 10 goals, is “reimagining energy for people and our planet,” CEO Bernard Looney said.
Looney, the former upstream chief who took the helm from Bob Dudley earlier this month, said BP would “fundamentally transform” the entire organization while maintaining a commitment to perform as it revamps.
The structure of BP, and most of the industry, he noted, “has been broadly the same for more than a century,” split into separate organizations for upstream, downstream and other businesses. To deliver on its goals, BP is throwing out the old world energy order.
“Our historic structure has served us well but, in order to keep up with rapidly evolving customer demands and society’s expectations, we need to become more integrated and more focused,” he said. “So we are undertaking a major reorganization, introducing a new structure, a new leadership team and new ways of working for all of us.”
BP’s existing, largely autonomous business segments, upstream and downstream, are being dismantled and reorganized into an integrated entity comprised of 11 teams and four business groups.
The new units are Production & Operations, Customers & Products, Gas & Low Carbon Energy, Innovation & Engineering, Strategy & Sustainability Regions; Cities & Solutions, and Trading & Shipping.
“The world’s carbon budget is finite and running out fast; we need a rapid transition to net zero,” Looney said. “We all want energy that is reliable and affordable, but that is no longer enough. It must also be cleaner. To deliver that, trillions of dollars will need to be invested in replumbing and rewiring the world’s energy system. It will require nothing short of reimagining energy as we know it.
“This will certainly be a challenge, but also a tremendous opportunity. It is clear to me, and to our stakeholders, that for BP to play our part and serve our purpose, we have to change. And we want to change – this is the right thing for the world and for BP.”
Chairman Helge Lund noted that energy markets are changing, “driven by climate change, technology and societal expectations, and the board supports Bernard and his new leadership team’s ambition for BP.
“Aiming for net zero is not only the right thing for BP, it is the right thing for our shareholders and for society more broadly. As we embark on this ambitious agenda, we will maintain a strong focus on safe, reliable and efficient operations and on delivering the promises we have made to our investors.”
BP’s ambition to become a net zero company within 30 years covers the greenhouse gas (GHG) emissions from its operations worldwide. BP’s GHG emissions today are around 55 million metric tons/year (mmty) of carbon dioxide equivalent (CO2e), and the carbon in the oil and gas that it produces is equivalent now to around 360 mmty CO2e, both on an absolute basis.
Taken together, delivery of the goal would equate to a reduction in emissions to net zero from what is now around 415 mmty CO2e.
“This is what we mean by making BP net zero,” Looney said. “It directly addresses all the carbon we get out of the ground, as well as all the greenhouse gases we emit from our operations. These will be absolute reductions, which is what the world needs.
“If this were to happen to every barrel of oil and gas produced, the emissions problem for our sector would be solved. But of course, the world is not that simple; the whole energy system has to be transformed and everyone has a contribution to make -- producers and sellers of energy, policymakers and everyone who uses energy.”
BP plans to help its customers reduce emissions by halving the carbon intensity of the products it sells, again by 2050 or sooner, by offering customers more choices of low- and no-carbon products.
BP also aims to install methane measurement at all existing major oil and gas processing sites by 2023 and then reduce methane intensity of its operations by 50%.
Over time, BP also expects to increase the proportion of investment it makes into businesses unrelated to natural gas and oil.
“We expect to invest more in low carbon businesses -- and less in oil and gas -- over time,” Looney said. “The goal is to invest wisely, into businesses where we can add value, develop at scale, and deliver competitive returns.”
However, Looney said , “BP needs to continue to perform as we transform. As committed as I am to making transformation happen, I am equally committed to some fundamental principles that have served us well. Safe and reliable operations will always underpin all we do, and we remain committed to meeting the promises we have made to our shareholders.
“We can only reimagine energy if we are financially strong, able to pay the dividend our owners depend on and to generate the cash to invest in new low and no-carbon businesses.”
Goals are set to target supporting the world’s progress toward net zero by actively advocating for policies that support net zero, including carbon pricing; ending “corporate reputation” advertising and redirecting resources to promote net zero policies; and incentivizing the global workforce to become advocates for net zero, including increasing the percentage of remuneration linked to emissions reductions.
In perhaps a charge to those opposed to reducing the use of gas and oil and transitioning toward a zero-carbon economy, BP is setting “new expectations for relationships with trade associations” to make the case for its views on climate change, including “being transparent where views differ, and being prepared to leave those where alignment cannot be reached.”
BP on Wednesday also said it would support the recommendations of the Task Force on Climate-Related Financial Disclosures to develop “good practices and standards” to ensure transparent reporting.
BP also “remains committed” to growing sustainable free cash flow (FCF) and makeing distributions to shareholders over the long term. The goal is to deliver FCF in 2021.
Raymond James & Associates Inc. analyst Pavel Molchanov called the announcement a game changer “in terms of scale. BP has become the first supermajor -- and, as such, the largest oil and gas company -- to set a net zero target for carbon emissions.
“BP's target, for 2050, places it in a still-small but growing list of top-tier hydrocarbon producers that have committed to carbon neutrality, including, most notably, Scope 3 (customer use) emissions. BP has yet to spell out the details behind its decarbonization roadmap, but the target itself marks an important first step.”
Wood Mackenzie’s Luke Parker, vice president of corporate analysis, said BP was joining other European-based supermajors Royal Dutch Shell plc, Total SA, Equinor SA and Repsol SA to commit in reducing the net carbon footprint.
“This marks a major turnaround in BP’s position,” Parker said. “Just 12 months ago, former CEO Bob Dudley said the company could not be held accountable for how people use its products. Looney is taking the company in a very different direction.
“It’s an ambition, rather than a target, but the commitment appears to be unconditional. In terms of scale of commitment, this puts BP toward the top of the pack, along with Repsol and Equinor.”
BP’s business is going to be “completely transformed over the coming decades,” Parker said, with renewables and carbon abatement getting bigger while legacy oil and gas will “eventually” be a smaller piece of the operations.
“But the transition to 2050 is a multi-decade transition,” Parker added, “not something that will happen in the next year or so.”