What Went Wrong for BP? Why the Oil Major Hit Reset

It’s been almost 25 years since BP Plc attempted to rebrand itself as “Beyond Petroleum” and adopt a more environmentally friendly image. But with a recent swing away from green energy toward its fossil fuel roots, “Back to Petroleum” might be a more appropriate tag line.

The shift comes as BP lags significantly behind its fellow oil and gas majors, thanks to a combination of corporate disasters, war, lackluster returns from its greener efforts, and some bad luck. And with American activist investor Elliott Investment Management now turning up the heat and rival Shell Plc potentially considering a takeover bid, BP is facing existential questions about its survival.

Its grand reset plan faces an additional complication: the prospect of crude prices remaining below $70 a barrel as US President Donald Trump’s tariff war weighs on the outlook for oil demand and the OPEC+ cartel ramps up supply. This price level is the foundation of BP’s targets for improved cash flow and returns. By the company’s own estimates, each $1 drop in oil prices wipes an estimated $340 million from its pretax profit.

Where did BP’s problems begin?

BP’s long decline was precipitated by the explosion aboard the Deepwater Horizon drilling rig in 2010, which killed 11 people and triggered the worst offshore oil spill in US history in the Gulf of Mexico. A federal judge found that the discharge of oil was the result of “gross negligence” and “willful misconduct.”

The company agreed to pay more than $65 billion in fines, environmental cleanup costs and compensation for thousands of businesses across several states. It’s still forking out for those damages today, at a rate of about $1 billion a year. BP shed more than half its value in 2010 and its market capitalization has yet to recover to its former glory.

Deepwater Horizon was only the first in a series of crises. There was also a bet on Russia that went awry. BP sold its stake in its Russian joint venture TNK-BP in 2013, in a deal in which it took 20% ownership of Rosneft PJSC, Russia’s largest oil producer. While for several years the gambit paid off, helping boost BP’s overall oil output, being the second-biggest shareholder in a company controlled by the Kremlin brought greater exposure to political risk.

The price of that exposure became evident in 2022, when Russia’s full-scale invasion of Ukraine led BP to abandon its stake in Rosneft and walk away from an asset worth around $25 billion that provided a third of its production.

What spurred BP’s venture into renewables?

ESG investing may have fallen out of favor in recent times, but a few years ago, shareholders and financiers taking into account environmental, social and governance factors upped the pressure on fossil fuel companies to reconcile their activities with the goal of the Paris Agreement to limit global warming to 1.5C.

The architect of BP’s climate pivot was then-Chief Executive Officer Bernard Looney. The firm was among the first oil majors to embrace the idea of reaching net-zero emissions, announcing in 2020 an ambition to achieve this goal by 2050.

This coincided with the arrival of the Covid-19 pandemic, which spurred a slump in oil demand. In the early weeks of this crisis, consumption in the world’s biggest market, the US, fell to the lowest level in at least 30 years. As Looney postulated at the time that global crude demand may have already peaked, BP said it would aim to reduce its oil and gas output by 40% by 2030 versus 2019 levels, and rapidly scale up investment in renewables.

But then Russia’s invasion of Ukraine sparked a global energy crisis and brought a surge in oil and gas prices. Fossil-fuel producers, including BP, raked in record profits. In many places in the world, especially Europe, the conversation moved from wanting clean sources of energy to emphasizing security of supply. As politicians and investors became less gung-ho about the climate transition, in 2023, BP revised down its goal to lower oil and gas production by the end of the decade to a 25% cut.

How has BP shifted its strategy?

The bumper profits from the energy crisis raised questions about BP’s decision to dial down its exposure to oil and gas. In the face of ongoing investor disquiet, the firm announced a major pivot back to fossil fuels in February 2025, ditching Looney’s vision of a low-carbon, fuels-of-the-future giant. It followed in the footsteps of the other supermajors, which recommitted more quickly to the hydrocarbon-focused strategies that fed their profits.

BP’s current CEO Murray Auchincloss said that the company went “too far, too fast” due to what he called “misplaced” optimism over the pace of the energy transition. As part of a “fundamental reset,” BP scrapped the plan to shrink oil and gas production, and intends to boost expenditure on these activities by nearly 20% to $10 billion per year through 2027. It will also slash annual spending on its energy transition businesses — which includes the likes of clean power, biofuels and electric vehicle charging — by about 70% to roughly $2 billion.

The strategy entails the divestment of $20 billion of assets by the end of 2027 too. This could include the Castrol lubricants business, which Bloomberg News reported could be worth around $10 billion. The proceeds could help alleviate a stretched balance sheet that has resulted in BP trimming its quarterly share buybacks at a time when most oil majors are maintaining shareholder returns.

BP’s ratio of net-debt to equity — a measure of how much a business has had to borrow to stay afloat – was about 40% at the end of last year, far higher than for Shell, TotalEnergies SE, Chevron Corp. and Exxon Mobil Corp.

How has BP diverged from other oil majors?

Under shareholder pressure, all the supermajors eventually pledged to do more to address climate change. But a split emerged between the European and US companies in terms of how they approached the energy transition.

BP and Shell invested heavily to be at the forefront of the electrification of the global economy in the push to reach net-zero emissions. They dove into industries that are looking to replace the use of fossil fuels, including wind and solar power and EV charging.

Exxon and Chevron, meanwhile, focused on technologies like carbon capture and hydrogen, which fit more neatly into energy systems already powered by fossil fuels. The American oil giants refused to kill the golden goose, increasing their annual oil and gas output by 15% and 9%, respectively, since the end of 2019.

If these strategies are judged by progress in share price, it appears that investors are more impressed by the US blueprint — as of early May of this year, Exxon’s shares had jumped by 50% since the close of 2019, while BP was down a quarter.

Is BP at risk of a takeover?

Amid BP’s weakened state versus its rivals, there’s now speculation that it could be a takeover target — either in its entirety or broken up and sold for parts. Bloomberg News reported in May that Shell, whose market cap is now more than double BP’s, is working with advisers to evaluate a possible acquisition, according to people familiar with the matter. A combination of the two firms would be one of the oil industry’s largest-ever takeovers, bringing together the iconic British majors in a deal that’s been discussed on and off for decades.

Other suitors could include a Middle Eastern national oil company. A tie-up with a US buyer, while not out of the realm of possibility, is likely to be a less palatable deal to UK regulators.

What does activist investor Elliott want?

BP’s laggard performance has put the firm in the crosshairs of the world’s most famous activist investor. When Elliott gets involved, companies sit up and take notice. In almost half a century of investing, the hedge fund has only lost money in two years of its existence. It’s shown it can kick out top management and even break up a firm.

Elliott has built up a stake of just over 5% in BP and has engaged in a campaign to return the major to its core oil and gas focus, demanding transformative changes, including substantial cost cuts, asset sales and an exit from renewable power.

While CEO Auchincloss said that he slept “like a baby” after unveiling his turnaround program, Elliott reportedly sees the new plan as lacking in urgency and ambition, and could push for a more radical shakeup. A couple of decades ago, the idea of an American investor taking a stake in a storied British company and forcing it to revise its entire strategy would be pretty much unthinkable. It’s a testament to how vulnerable BP has become.

In an apparent nod to Elliott’s demands, BP announced in April that Chairman Helge Lund will be stepping down “in due course”, while Giulia Chierchia, executive vice president for strategy, sustainability and ventures, will leave the company and won’t be replaced. Both were seen as key backers of the failed 2020 plan to rapidly shift away from oil and gas into clean energy.
Not all shareholders are happy with the oil major’s refocus on fossil fuels. Legal & General Group Plc, a top-10 investor in BP, said in a post on its website in May that it’s “deeply concerned by the recent substantive revisions made to the company’s strategy” and the impact on climate commitments.

Is there a risk the oil majors get caught out by the race to net zero?

Oil companies are capitalizing on the pendulum swinging back toward fossil fuels amid concerns over energy security and the tailwind of US President Donald Trump vowing to “drill, baby, drill.”

But the focus on short-term profits could leave them exposed further down the line as the energy transition rolls on. There’s much debate over when, and if, oil and gas consumption will peak — OPEC forecasts oil demand will just keep rising, while the International Energy Agency expects the ceiling to be reached by the end of the decade. If a peak is indeed coming — and potentially within five years — doubling down on fossil fuels now could prove a risky bet for all but the lowest-cost producers.