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Bluebells symbolise everlasting adoration. Yet there is little love lost between hedge fund Bluebell Capital Partners and BP. The London-based activist has called BP’s strategy to cut oil and gas production “irrational”. Instead the FTSE 100 oil producer should slash investment in clean energy and plough more into its core hydrocarbons business.
That BP has become the target of activist pressure should not surprise. On an enterprise value 3.4 times its forward ebitda, BP trades a tenth below already cheap European peers such as Shell and Total.
Bluebell’s campaign dates to October when it sent a letter to Murray Auchincloss, at the time BP’s interim chief executive. Despite its modest size, Bluebell boasts some success at other big companies, namely Danone. Yet it is unlikely to count a strategic volte-face at BP among its victories.
Auchincloss was confirmed as CEO on a permanent basis this month following Bernard Looney’s abrupt departure in September. Had there been sufficient shareholder pressure to rethink its strategy, BP chair Helge Lund would have opted for someone other than Auchincloss, one of the architects of the current plan.
Bluebell’s gripes have some merit. Since BP set out its ambition in 2020 to become a net zero company by 2050, its shares have lost 3 per cent. Total and Shell have meanwhile climbed 31 per cent and 21 per cent respectively. Some of BP’s investments in offshore wind — in particular the US — have looked misguided.
However, BP’s strategy has since evolved. Investors reacted positively last February when it pruned its target to reduce oil and gas production by 2030. Also, Auchincloss could look to his French rival Patrick Pouyanné for a steer on how to deal with investors who remain doubtful.
Investors have preferred Total’s clearer, two-pronged strategy. This combines its traditional oil and gas business — in particular liquefied natural gas — plus a power business that invests in renewable technologies including wind, solar and storage. Critically, Total has pledged to distribute to shareholders more than 40 per cent of cash flow from operations from 2023. Most important, Pouyanné has won a reputation for delivering on his promises.
By contrast, BP has suffered a communication problem since setting out its strategy. Offshore wind has generated negative headlines. Yet BP has refined its clean energy business to focus on areas such as biofuels and electric vehicle charging. These offer rates of return at least equal to the 15 to 20 per cent seen in its core hydrocarbons business.
Auchincloss could do worse than follow Pouyanne’s lead. A focus on the highest return investments in renewables coupled with predictable shareholder payouts should prevent any activist discord from spreading.