The Local Authority Pension Fund Forum (LAPFF) in the UK has urged BP to demonstrate “genuine” capital expenditure discipline after new analysis suggested the company’s increased focus on upstream growth and exploration could undermine long-term shareholder value.
Research published by the Australasian Centre for Corporate Responsibility (ACCR) found that BP has spent $22bn (€19bn) on new conventional oil and gas projects over the past six years, generating just $900m in value under forward prices.
BP would be $11bn more valuable if it halted exploration and the sanctioning of new conventional projects focusing on producing from existing resources, ACCR said.
A core concern for investors is the competitiveness of BP’s future project pipeline.
LAPFF chair Doug McMurdo said long-term investors now expect BP to justify its upstream expansion through the lens of capital discipline.
“As part of the company’s ‘fundamental reset’, we expect BP to explain how growing upstream capex and expanding exploration can truly be viewed through the lens of capital discipline,” he said.
Previously, the oil giant had positioned itself as a frontrunner on climate. In 2022, 88% of its shareholders voted in favour of its transition strategy in a ‘say on climate’ vote.
However, after record-breaking profits as a result of the boom in fossil fuel prices in 2022, BP announced in 2023 that it planned to reduce oil and gas production by 25% by 2030 instead of 40% (as previously promised) and allocate less than planned to renewable energy.
Earlier this year, LAPFF was among BP’s shareholders voting against the reappointment of its chair Helge Lund, with BP’s decision to backtrack on its climate commitments without shareholder permission, being a key driver of the vote.
“They’ve just completely ripped up the previous strategy,” said McMurdo.
“Only three years ago, we [LAPFF] held BP as the leader in this sector with regard to its approach to decarbonisation and it’s a complete slip.”
“They’re now risking investing capital in the wrong places,” he added.
Low-value projects
ACCR’s research also found that BP’s conventional oil and gas portfolio awaiting Final Investment Decision (FID) is not cost-competitive when compared to global supply. According to the ACCR, BP’s pre-FID gas assets are more expensive than 76% of global pre-FID supply, while its oil projects are more expensive than 53%.
As such, the ACCR warned that this raises the risk of capital being directed into “low-value projects” that may not generate adequate returns under more conservative long-term pricing assumptions.
Furthermore, BP’s exploration efforts have become less successful, more expensive and less productive over time, reflecting a global decline in value creation from conventional exploration since the 1990s, the report said.
Despite this, BP plans to increase exploration as part of its ‘fundamental reset‘, while reducing annual low-carbon capex to below $800m and raising upstream investment from $8.5bn to $10bn.
Crucially, ACCR’s modelling shows BP would remain a major producer even without new exploration, with output of around 400 million barrels of oil equivalent in 2050.
Nick Mazan, ACCR’s oil and gas strategy lead, said the findings highlight a disconnect between BP’s strategic reset and the underlying economics of its upstream growth plans. “Increasing exploration and doubling down on upstream capex is not a turnaround plan, it’s a rerun,” he said.
“BP is a particularly bad allocator of capital […] the value associated with those investments does not appear to be adequate from an investor perspective,” Maven added.
“As part of the company’s ‘fundamental reset’, we expect BP to explain how growing upstream capex and expanding exploration can truly be viewed through the lens of capital discipline.”
The report’s findings are echoed in Carbon Tracker’s Fading Fortunes report, which warns that new upstream projects are increasingly a high-risk, low-reward strategy across the sector. The analysis suggests new Canadian oil and gas projects could place up to 30% of sector value at risk under faster transition scenarios, with limited upside even in slower transition conditions.
Speaking to IPE, Mark van Baal, founder of climate campaign group Follow This, said both reports highlight the need for investors to scrutinise companies’ assumptions about long-term demand.
Follow This has previously filed climate resolutions at Shell and ExxonMobil, which resulted in the oil major filing a lawsuit against the group. The case was dismissed by a US judge last year.
“There is far more logic to Carbon Tracker’s and ACCR’s analysis than to the oil majors’ forecasts,” he told IPE. “If companies continue to explore new fields that take decades to repay, that’s too high a risk with too little reward.”
Van Baal added that shareholders should now view “no new exploration” not only as a climate imperative but as a financial discipline measure.
The latest digital edition of IPE’s magazine is now available
