Talking head: bp CFO Murray Auchincloss

How do you reimagine an oil and gas business and reinvent the company while continuing to deliver for employees and investors? As 2021 draws to a close,  chief financial officer Murray Auchincloss talks about our recent performance, bp’s strategic plan, and why the key to success lies in the integrated business model. 

With three strong quarters of results announced so far for 2021, it’s an exciting time for the business.  

It’s really encouraging. Yes, for three successive quarters, we’ve seen standout sets of results. We’re strengthening our balance sheet, investing in our transformation and increasing distributions to our shareholders. Our strategy is better understood and appreciated – we’re hearing that from our shareholders. As you say, it’s a really exciting time to be part of bp. 

Since we announced our new strategy in 2020, the business has been going through a significant transformation. Give us an insight into why this shift is so important for us.   

You’re right, it’s a big change – but it’s also a big opportunity. Fundamentally, we want to be a very different company by 2030, pivoting from an international oil company to what we describe as an integrated energy company. It’s about creating integrated energy solutions for customers who want cleaner, reliable and affordable energy. We believe we can do that in a way that, quite frankly, not many companies can, while continuing to create value for our shareholders at the same time.

The obvious question then is, if we’re pivoting away from being an international oil company, where do hydrocarbons fit into our business?   

So, this is a really key point, and I want to stress this: we are in no way cutting ties with our hydrocarbons business. In fact, we’re continuing to invest in it. If you look at any credible science-based scenario, including the latest research from the IEA [International Energy Agency], hydrocarbons will continue to play a critical role in the energy system for decades to come. What we are doing, though, is exploring more diversified sources of energy to support a wider, integrated energy value chain. It’s reflected in the three pillars of our strategy: firstly, focusing our investments in hydrocarbons; secondly, expanding our convenience and mobility business; and, thirdly, being disciplined about where and when we put money into low carbon energies.

Let’s talk a bit about those strategic pillars. Firstly, how are we focusing our hydrocarbons business?  

Well, the biggest change is that we’re looking to reduce our production by around 40%, but, through high grading the portfolio, we expect to grow cash flow to 2025.  This is quite an undertaking for a business that has spent more than 100 years trying to grow its production. But again, we are continuing to invest here – we’ve already brought online seven new major projects this year, with more to come. So, we will invest in and start up new oil and gas fields, but only the ones with the lowest possible environmental footprint and with the best returns. We are also focusing and high-grading our refining portfolio and looking at next-generation low carbon opportunities in biofuels. 

What about our investment in convenience and mobility? I know we’ve had a record year to date. 

Now, this really is something I think we should be getting excited about. It’s an area that has huge potential and yet, in my view, it’s a part of the business that’s often really overlooked.

We’ve grown at 7% a year for the past five years and generated returns in excess of 20%. That’s pretty good going, right? Our footprint is getting bigger, too. If you look at what we’ve done with Thorntons, for example – we’ve just taken over 208 stores in the US – that now makes us the leading convenience marketer in the Midwest. Consumers post-Covid are valuing convenience even more than we ever could have imagined. And we see growth out of convenience and mobility significantly across the globe, especially in Europe. Over time, this will help to offset the gradual decline in contribution from our hydrocarbons business. 

We’re also busy increasing our electrification footprint – another area where we see continuing growth.

When people talk about metrics for EV charging, a lot gets made of how many charging points you have, but, for us, we’re more interested in utilization – how much electricity is actually being sold – and we’re seeing these rates going up and up and up – even exceeding our own forecasts this year. 

And with two strong, cash-generative business lines, it gives us the ability to continue building out our low carbon and renewables operations?  

Exactly. But just as we’ve stressed the importance of the need for focus in our hydrocarbons business, we need to be equally disciplined in the way we invest in low carbon and renewables.

What I mean is, we’re not about to go chasing after any and every opportunity for the sake of scale. This is where we’re starting to create the growth areas for the next decade – 2030 to 2035 to 2040. But we have to be confident that the investments we make in this area will generate between 8-10% levered returns, and if we don’t see that, we’ll look elsewhere – we’ve been pretty clear about that. 

So, we have three clear areas of focus, but I know you’ve stressed the importance of the connection between them.

It’s absolutely critical for the way we can support the world in securing clean, reliable and affordable energy.

The point is an integrated energy system needs an integrated energy business. And as that system becomes more and more complex, there are very few companies that are set up to support and sustain it. In my view, bp has the experience, scale and expertise to be able to do that.

I’ll give you an example. If we look here in the UK, how many companies have the capabilities to build offshore wind assets, use that power to run hydrogen facilities, and power the largest EV charging network in Britain? Which other companies have the cash flow to be able to finance and grow new renewable operations, or build cross-industry, international partnerships with leading players, while drawing on digital expertise to reach new customers? We can – and it’s our integrated approach that makes this possible. 

We’ve heard a lot of people in the business talk about ‘performing while transforming’, what do we mean by that, and why does it matter for our investors? 

Well, the short answer is we mean exactly that. How I’d want our investors to see this is that changing the look of our business won’t come at the expense of returns. In fact, we think it will only make them stronger. I’ve been championing our investment case for a long time and, of course, I come at it from a slightly biased view, but I really feel this is a business with a lot to offer – a business that’s set up for success. This is a strategy that enables us to support the energy transition, deliver attractive returns for our shareholders, and invest in the foundations for our future growth. And it’s working – three back-to-back strong quarters with growing dividends and share buybacks for our shareholders. 

Just to pick up on your point about the dividend, how does it fit within our wider financial frame? 

It’s right that the people supporting our transformation share in its success. That’s why paying a resilient dividend to our shareholders is always our first priority – and, where possible, we want to increase that. Second priority in our financial frame is to reduce our debt – something we’ve been able to keep cutting for six successive quarters. Thirdly, we’re focused on investing in our transformation, and finally returning surplus cash to our shareholders through share buybacks.

Any final thoughts you want to leave us with? 

There’s more to come. If we keep doing what we are doing, we can continue our standout performance into more of the same in 2022. And we need to do that to encourage more people and more investors to join us and play an important part in the energy transition.