Today is hugely exciting for bp. Yes, it’s our 2Q results day – but that is not the reason. This morning we also announced our new strategy, a new financial framework and a new investor proposition. In time, I believe this day will be viewed as a major milestone in our company’s 112-year history.
That’s because we are setting out how we plan to reimagine energy for people and our planet – and get bp to net zero.
And the more we understand about the impact of COVID–19 – which hit today’s earnings really hard – the more convinced we are that the path we have chosen and the destination we have set are the right ones for bp. And we intend to move quickly – within a decade, we expect to be a very different kind of energy company.
Over the next 10 years, we will reshape bp as we pivot from being an international oil company focused on producing resources, to an integrated energy company focused on delivering solutions for customers – transforming from IOC to IEC.
So, what is an IEC that delivers solutions to customers?
Let’s focus on the key words.
The world’s energy problems are increasingly complex. They increasingly require complex, multi-energy solutions. This plays to our strengths. bp has global reach, long experience and vast skills. We can bring all that together from across the company – integration – to deliver solutions. For example, we are unlikely to build a renewables business for its own sake. We will build it as part of an integrated energy solution for a customer or because it enables a zero-carbon energy offer, or because it allows us to develop a new area, such as green hydrogen. It is about seeking integration in everything we do – along each discrete value chain and across value chains.
We will diversify our company into different forms of energy – renewables, bio, hydrogen. Oil and gas will get smaller over time but will remain an important part of bp.
We have long been focused on the production of resources. Now we will shift our focus to providing solutions for customers. Those customers will include mobility consumers and ride hailing services, commercial and industrial companies for electricity and gas, cities and industrial sectors in their journeys to decarbonize, and you and me for convenience. And many, many more.
Our announcement today builds on all the good progress we’ve made since we set our new direction in February. Our new leadership team is in place. We are making bp leaner and flatter. We have updated our long-term price assumptions and we are strengthening our balance sheet and continuing to reshape our portfolio.
With the addition today of our new, clear strategy; our new, disciplined financial framework; and our new, compelling investor proposition, all the pieces of the puzzle are coming together to form a single, coherent plan.
To get bp towards net zero and compete through the energy transition, we will:·
We call these our three focus areas. Lots of companies also invest in them, so they are not unique to bp. But we believe we can differentiate ourselves through three distinctive sources of value:·
By executing this 3x3 strategy, we’re aiming to look very different in 10 years’ time with:
At the same time, we will also continue to focus our oil and gas portfolio on value. While we will not explore in new countries, we expect our hydrocarbons business to be industry-leading in terms of quality and highly prized.
We expect production to be around 40% lower by the end of the decade but higher quality – more resilient to lower prices, producing fewer emissions, and the key source of earnings and of growth in returns over the next several years.
Many will see our plans for lower production and understandably ask if we are turning our back on oil and gas. Let me be clear: we are not. Hydrocarbons will be integral to bp for decades to come. They are a core part of our strategy. In fact, they enable the strategy. They fuel our transformation.
What is changing is that bp will no longer be predominantly a hydrocarbon company. It will be an integrated energy company – with hydrocarbons one part of a more balanced portfolio.
Finally, a word on governments. Many countries around the world have entrusted us with the development of their resources. That responsibility is no less important today than it was yesterday.
Delivering net zero
The decade ahead is critical for the world in the fight against climate change. Driving the changes needed in global energy systems requires action from everyone – and we want to play our part.
So, by 2030 we are aiming to:·
Now, turning to the new financial framework and investor proposition that will support delivery of the strategy.
We will be disciplined in how we grow our low portfolio and deliver our net zero ambition. In fact, our planned 10-fold increase in low carbon spend will take place within capex guardrails of $14-16 billion per annum, at the upper end. That means that around $9 billion will still be directed to oil and gas – smaller, yes, but still significant. Hurdle rates for all investments will be strictly adhered to.
In order to do all this, while also dealing with the uncertainties of the pandemic, the Board has reset the dividend to a more affordable level and created a compelling new proposition for investors of all kinds:·
We think it’s a winning formula that will deliver long-term value for our shareholders and hopefully attract new ones as well.
Finally, throughout our transformation process, I want to emphasize that our commitment to safety remains consistent and unwavering.
It is and will remain our core value permeating everything we do. Fundamentally – it is about care. Caring for one another, caring for our company, and caring for the communities where we operate.
In the second quarter, 32 people were hurt in our operations – fewer than previous quarters, but still 32 too many. We had 23 process safety accidents – serious leaks and spills.
We will not rest until we get those to zero – and not after either.
We now have everything we need to transform – a strong purpose, a bold net zero ambition, a plan to reinvent bp, a clear strategy, a disciplined financial framework and a compelling investor proposition. It’s now about making it happen – making sure that we really perform as we transform.
I appreciate this is a lot to take in. And I find it hard to talk about being excited when so many of you are worried about the future – and so many of us are worried about our families and the world in general. But, in many ways, it’s what we need. To look to the future with optimism and a desire to make a difference for our stakeholders: the communities where we work, our customers, our suppliers, our shareholders, the planet, and importantly – you.
We will do this. We will do this together!
Let’s make this a decade of delivery for bp.