Oil Giants’ Green Transformation: A Major Retreat

At BP’s London headquarters, CEO Murray O’Kinkloss raised an eyebrow as he addressed analysts and employees, announcing that the company’s Capital Markets Day at the end of February would be “exciting.” He took a sip of water, then stated, “Today is not just about updates; the company’s strategy will undergo a fundamental shift.” That statement might still have been somewhat understated.Five years ago, BP made a bold announcement about leading the oil giants into an energy transition, focusing on substantial investments in green energy. BP promised to reduce its oil and gas output by 40% by 2030 and aimed to achieve net-zero emissions by 2050. At the time, CEO Bob Dudley told Fortune magazine, “I truly believe this is the way forward,” adding, “If we don’t act, the future of the world will be quite bleak.”However, this strategy failed to convince investors. BP did not fall into the obvious green energy “money pit.” Under Dudley’s leadership (he left in 2023), BP made aggressive moves into wind energy, solar power, and electric vehicle charging infrastructure. Yet, with falling profit margins in wind and solar, and slower-than-expected electric vehicle adoption, BP’s large investments seemed premature. Moreover, with U.S. clean energy subsidies losing political momentum, the dominance of oil and gas would clearly last longer than green energy advocates had anticipated.Meanwhile, BP’s reduction in oil and gas output coincided with surging fuel and power demand post-COVID, the ongoing Russia-Ukraine war, and the rise of AI-driven infrastructure projects. Just as oil and gas became profitable again, BP’s saleable assets shrank. Now, BP is formally adjusting its direction.In February of this year, BP announced it would increase spending on oil and gas exploration and production by nearly 20%, while divesting clean energy assets as part of a $20 billion asset disposal plan to be completed by 2027.

Speaking to Fortune at BP’s U.S. headquarters in Houston, O’Kinkloss explained that BP had “gone too far, too fast” in its energy transition, leading to “very low capital efficiency.” He continued, “We were focused on too many projects. We should have been more concentrated. That is my primary focus now.” O’Kinkloss also stated that BP would boost oil and gas output while investing in renewable energy at a steadier pace. “Stick to what we do best and grow steadily…because that’s where demand lies.”BP is not the only company retreating from the clean energy field, but its shift and struggles are the most dramatic, and its margin for error is smaller. By mid-July of this year, ExxonMobil, the industry leader, had a market value close to $500 billion, nearing its historical high, while BP’s market cap stood at $85 billion, still struggling since peaking nearly 20 years ago. Ben Dell, co-founder and managing partner of the activist investment firm Kimmeridge, pointed out that the company should have reassessed earlier, saying that oil giants must reposition themselves after forgetting basic business rules. “Charity is not an investment strategy,” he said. “To some extent, these giants have overlooked this point—wherever they invest, it must be cost-competitive.”Given that both BP and its rival Shell are headquartered in London, long-rumored acquisition talks escalated in late June to reports that “Shell is in preliminary discussions to acquire BP.” If true, this would be the largest energy deal of the century, if not ever. Shell quickly denied the talks, but the rumors did not dissipate. Activist investor Elliott Management now holds a 5% stake in BP and is pushing for major asset sales (especially in clean energy), increasing the pressure on BP.

BP has a 116-year history, dating back to the “Anglo-Persian Oil Company” during Iran exploration, and rebranded to BP in 1954. Whether praiseworthy or unfortunate, BP was the first oil giant to face the climate change challenge head-on. In 2000, the company rebranded with the slogan “Beyond Petroleum,” but after a series of rapid acquisitions, it fell into operational and safety issues due to a lack of clear strategy, and the move was widely mocked as “greenwashing.” Later, the slogan faded from memory.Subsequently, in 2005, a fatal explosion occurred at a refinery in Texas City; in 2006, an oil spill happened at Prudhoe Bay in Alaska; in 2010, the “Deepwater Horizon” disaster occurred, the most severe offshore oil spill in history. This catastrophe forced BP to sell billions of dollars in assets and pay over $1 billion annually in fines until 2033. BP’s business in Russia also suffered a major blow. In 2013, Russian oil company Rosneft acquired BP’s 10-year TNK-BP joint venture in Moscow, and BP received a 20% stake in Rosneft. At the time, the deal seemed profitable: Rosneft quickly contributed one-third of BP’s oil and gas output, and BP received over $1 billion annually in dividends. But in February 2022, the outbreak of the Russia-Ukraine war disrupted this arrangement. While BP still nominally holds shares in Rosneft, it has written down a $24 billion loss, making the investment essentially worthless.BP was not alone in facing such challenges, but its losses were more severe than its peers. For example, ExxonMobil only wrote down a $15 billion loss on its Russian investments in 2022. Against this backdrop of challenges, BP’s income has suffered annual losses of about $2 billion from both Rosneft and the “Deepwater Horizon” disaster. This is also one reason why BP’s profit was only $381 million in 2024.“

They aren’t making cash,” said Jason Gabelman, managing director of energy equity research at investment bank TD Cowen. “So it’s hard to outperform the market.”What’s worse, a larger proportion (about twice that of its peers) of BP’s oil and gas output is tied up in profit-sharing agreements with other countries or joint venture partners. “BP still has strategic flip-flopping issues,” Gabelman added. “Changing strategy three times in five years is never a good sign.”Since the “Beyond Petroleum” slogan failed, the question now is whether BP can successfully adjust its strategy or if investors will lose patience, forcing it to sell. Whether the industry will eventually “outgrow BP” remains to be seen.In early 2020, Irishman Bob Dudley took over as CEO of BP. He was decisive, media-savvy, and aligned with the aggressive green agenda. However, strategic missteps, compounded by personal controversies with employees, led to his sudden resignation in September 2023. O’Kinkloss, the CFO at the time, became interim CEO, reportedly learning of his appointment only 20 minutes before the announcement. Four months later, he shed the “interim” title.O’Kinkloss, a Canadian by background, is known for his calm demeanor. He joined Amoco, based in Chicago, in 1992 as a tax analyst. In 1998, Amoco merged with BP in a deal worth nearly $50 billion. He later became BP’s CFO, having served as head of upstream operations and office manager to former CEO Lord Browne. However, O’Kinkloss is not a typical “finance guy” pushed into a top position; he comes from a fourth-generation oil family in Alberta, Canada, and helped his geologist father select oil and gas drilling targets at age 14. “Strange?”

O’Kinkloss laughed. “I’m not an engineer, nor an expert, but I know quite a bit.”When O’Kinkloss took over, the energy giant was deep in decline and needed strict financial restructuring. “What we really need to focus on is streamlining the portfolio and executing thoroughly,” he said. “I think the performance-driven nature of a financial background is crucial.”His financial discipline has been evident in BP’s sale of U.S. onshore wind assets, a 50% stake in its Lightsource solar business, and the creation of a 50/50 joint venture with Japan’s utility firm JERA to sell much of BP’s global offshore wind business. BP also sold a $1 billion stake in the Trans-Anatolian natural gas pipeline to Apollo Global Management. An ongoing strategic review of BP’s $8 billion Castrol lubricants business and sales of retail gas stations in the Netherlands and Austria are underway.With its strategic pivot toward increasing oil and gas output, BP is focusing more on U.S. and Middle Eastern expansions, including the Cascade Deepwater Hub project in the Gulf of Mexico and the Kirkuk oilfield in Iraq. By the first quarter of 2025, BP’s daily oil and gas output had fallen to 2.24 million barrels, a 17% decline from the 2.7 million barrels it produced in late 2019, even as global demand rises. Now, BP plans to bring its daily output back to 2.5 million barrels by 2030. New natural gas projects in Mauritania, Senegal, Egypt, and Trinidad will start production this year. Over the next two years, three new oil and gas expansion projects in the U.S. Gulf of Mexico will begin, with other major projects set to complete by the decade’s end.By 2030, BP plans to derive at least 40% of its output from the U.S., including operations in the Gulf of Mexico and BPX Energy’s onshore business in Texas and Louisiana. Some energy analysts have questioned whether BP should divest BPX.