Some people think it is not enough – it should be 100%. Others think 40% is too much.
This is what we believe:
First, we have worked hard to find a balance that enables growth in cashflow and returns – or EBIDA and ROACE as we define them – at the same time as transforming the company. At the core is a relentless focus on value over volume. It’s a difficult balance to find, but we believe we have found it.
What does that enable?
Second, in redeploying capital into low carbon and capturing growth in these markets, we decarbonize and diversify bp – and, in doing so, reduce risk.
And third, a 40% reduction by 2030 puts us well on the way towards becoming a net zero company by 2050 or sooner.
This is a clear source of differentiation for us – and one that we believe is right for where we want to take bp and for the energy transition.
And to dispel any myths about a fire sale – we are in no rush to sell our hydrocarbon assets.
We have a strong balance sheet underpinned by a wall of cash and reinforced by our recent $12 billion hybrid issuance and the disposal of our Petrochemicals business.
The $25 billion divestment programme is already 50% underpinned by agreed transactions with a suite of options being developed for the other half.
So, the decisions we take over the coming years will be thoughtful, value-driven and disciplined – and will continue to enable us to high-grade our portfolio:
Fundamentally, this question gets at how we will maintain the necessary cashflows from hydrocarbons while we scale our low carbon and transition businesses.
I will provide more detail on how we expect each of the three vertical focus areas to contribute – and start, quite deliberately, with convenience and mobility, which is a business driving rateable growth over the period.
Turning next to resilient hydrocarbons.
Firstly, this is not about turning off one tap and turning on a different one. This is about adjusting the flows.
This part of our business is an engine of cashflow that is running really well and we intend to keep it that way.
And finally, to low carbon electricity and energy, where we will initially invest to grow, being disciplined in our choices, and expect it to make more of a contribution in the second half of the decade.
When put together, we see all this contributing to growing cashflow over the next five years.
But we expect this decline to be more than offset by rateable growth in convenience and mobility.
And in low carbon electricity and energy where we expect EBITDA growth to accelerate as the capital we are investing matures and we begin to see the benefit of scale across the business.
We also expect to sustain returns at 12-14%.
We are aiming to have developed 50 gigawatts of net renewable generating capacity by 2030.
In answer to the question, we think this is realistic and it is achievable – and we think so for the following three reasons:
Now, starting first with the capacity being developed, it is really important to put the 50 gigawatts into context. We expect the market to grow dramatically – in the Rapid scenario it triples in size, from around 1,400 gigawatts today to around 4,700 by 2030.
But even in the Business As Usual scenario, there is substantial growth, with the market more than doubling in size.
In terms of pipeline – across solar, biopower, onshore wind and now offshore wind we already have a pipeline of projects at different stages of maturity that add up to about 20 gigawatts of capacity.
Lightsourcebp alone has 16 gigawatts in its pipeline – up from 9.8 gigawatts this time last year and just 1.6 gigawatts in 2018.
And, of course, we are now entering the offshore wind sector, which is growing faster than any other form of renewable energy.
I am really excited about the partnership we have agreed to create with Equinor. They are a world-class offshore wind company and we look forward to growing with them.
But let me be clear. We know what happens when volume becomes more important than value.
And, therefore, we will only pursue opportunities that we believe can generate the disciplined returns we expect, and our shareholders expect.
And that links to the fourth question.
The answer is very simply – yes.
We actually believe we can do better, and these returns could turn out to be conservative.
But let me take you through why we have absolute confidence in our plan. It is firstly based on experience – specifically, with Lightsourcebp.
Since we formed the partnership at the start of 2018, Lightsourcebp has expanded its presence from five to 13 countries.
As I mentioned, it has grown its project pipeline from 1.6 gigawatts to 16.
And it has delivered 17 projects since 2018. They typically achieve returns in the 8 to 10% range.
So, how do we get to 8 to 10% across our renewables portfolio as a whole?
So, yes – we are confident we can deliver the returns we are targeting.
Especially in this new world. And there are four reasons:
Starting with operations and project management. Today, we are strong in oil and gas, strong in refining and have demonstrated how many of these technical skills are transferable.
Where we lack capability – such as in solar development – we formed a joint venture in Lightsourcebp – and we now have a deep execution capability to prosecute our solar buildout. We bought Chargemaster to do the same in EV charging. And the partnership we have agreed to create with Equinor takes us into offshore wind.
Everyone talks about being good at partnerships, but we genuinely embrace them. We believe in the power of working together – where one plus one makes more than two.
But what we really like is where partnerships can take you. As an example, who would have thought that when we first worked with Reliance in India 10 years ago, that this would result in a compelling partnership in retail with Jio – one of the world’s fastest-growing brands – to establish 5,500 service stations by 2025 in one of the great growth markets of the world?
We believe digital is a real source of differentiation for us.
This is due in large part to the collaboration with Palantir – where we have invested in data platforms, advanced analytics and data visualization, delivering significant value over the past three years.
And it is this approach to collaboration and partnerships, and our own mindset around innovation, that are key to challenging our thinking, to building capability and, importantly, in enabling us to access new opportunities and new markets.
And, fourthly, integration:
As we said earlier, customers are demanding integrated solutions that give them firm, cheap and cleaner energy.
Very few companies can do this. We believe we have the skills to integrate these hugely complex ecosystems and give those customers a solution – energy when they need it, how they need it, and where they need it.
That could be electricity for their fleets, their cars; biojet for air travel; or hydrogen for heavy transport. Providing these multi-energy solutions is a lot more complicated than it has been in the past, with complexity creating barriers to entry that only a few companies can overcome.
And this is where bp can thrive. As Murray said in August – we love complexity like this. And it is why we have elevated our trading function to the leadership table – to help enable this, connecting all our businesses and assets, and optimizing them at scale – across geographies and across commodities.
And let me finish with a final reason as to ‘why bp’. It is something you can’t put into a spreadsheet – but, in my opinion, probably matters more than anything else.
We have a massive determination to make this work and deliver what we laid out. We need to deliver for our employees. And they want to deliver. For them – executing our new strategy is not just about coming to work to do a job. It is about coming to work to reimagine energy for people and our planet.
And bp is a company of people who are motivated by that – and who really want to help the world reach net zero and improve people’s lives.
As well as for our employees – we need to deliver for our shareholders and for society. And we want to. And we will.