Big oil’s step back is a signal to shareholders
Rohan Bowater, co-founder and lead oil and gas analyst at Accela Research argues that BP's doubling down on oil and gas mean shareholders need to acclerate their stewardship efforts
This is the year of the great rebase. That is the key takeaway I put forward in our annual flagship report released this week in the lead up to AGM season. At Accela Research I have spent the past year forensically analysing the oil and gas sector retreat from climate investment. Now that the dust has settled, the view is stark.
Across the sector, emissions targets have been downgraded and ~$66 billion of low-carbon investment has been slashed from future guidance. This, after the planet's warmest year on record.
BP has made the most spectacular reversal. A year ago, the British supermajor was a trail-blazer when it came to decarbonisation. Now, Accela has ranked it second last in our transition league table. The company is scaling back renewables, selling off assets, and re-energising its expansion of oil and gas. The response looks reactive, rather than an evolution of the business model. I think they have given up on transition and are heading back to the old BP.
The sector has a fresh appetite for fossil fuels, more cash, and a sharper focus on near-term payouts to shareholders. It’s not just a reaction to poor returns from low-carbon investments - it’s about chasing quicker, more familiar profits. The Majors’ oil and gas production is now expected to rise by about 10% by the end of this decade, a sobering shift from just ~2% forecast a year ago. This increase isn’t to meet energy security needs, but to sustain high distributions to investors. Payout ratios have climbed to nearly 50% of operating cash flow across the majors.
Our analysis makes it clear that this is no short-term wobble, but a deliberate redirection of capital away from climate.
It doesn’t have to be this way. TotalEnergies and Eni are the exceptions who have stayed the course, continuing to invest in low-carbon and showing that transition isn’t impossible, it is a choice. TotalEnergies is leading its peers in both ambition and delivery, allocating ~28% of its capex to low-carbon projects and building out more renewables capacity than all other majors combined. Eni has stayed similarly committed, with comprehensive emissions targets and sustained investment.
Some of the pullbacks we’ve seen make sense, others don’t. With high costs and weak returns, offshore wind has underperformed, resulting in justifiable alterations to business strategy. On the other hand, hydrogen and CCS continue to receive billions in capex despite remaining speculative bets with few signs of commercial success.
Renewables paired with flexible, dispatchable assets like gas peakers and battery storage are proving more resilient. Companies like TotalEnergies have achieved respectable margins (~13% EBIT) that can compete with the wider clean energy industry. By combining wind and solar with power sources that can be switched on when needed they can exploit price variations, drawing on expertise from their vast and profitable oil and gas trading divisions. Eni has meanwhile maintained its biofuels expansion as other majors retreat. It recently completed a plant in Sicily and three more are underway elsewhere. Here, there is optimism and early financial returns are helping some of the majors maintain their transition credibility.
We always knew the transition to low-carbon energy would be bumpy and unpredictable. But we also know that it is ultimately unstoppable and that enterprises that turn their backs on it are fighting the future and taking a mighty risk.
The dramatic reversals of companies like BP should be a call to arms for shareholders. A strategy where distributions dominate investment can only be sustained for so long. Cycles turn and underinvestment catches up. Investors need to make it clear that near-term distributions must be balanced against disciplined reinvestment in scalable and long-term low-carbon projects.
Investors can wield their power through the allocation of capital, the expectations they set with management, and how they engage and vote. Climate stewardship efforts need to be escalated and more assertive. Shareholders have a unique ability to hold companies to account, challenge backsliding, and back the ones that are serious about building long-term, low-carbon value.
To be successful, investors also need to be savvy and well-informed. Accela is working to support them. In addition to our regular reports this year, we’re debuting an investor portal that will hold all the essential information investors need on the oil and gas majors. There is ample evidence that low-carbon projects are profitable and will continue to be so. The underlying drivers of the transition, such as government policy and growing customer demand for low-carbon energy, remain intact.
Underinvesting today in targeted low-carbon technologies threatens competitiveness in the future. Companies risk being unprepared when decarbonisation inevitably accelerates again. In revolutions, no one wants to be on the wrong side of history. Investors must ensure that they, and the companies they’re invested in, don’t get left behind.
About the author: Rohan Bowater is the co-founder and lead oil and gas analyst at Accela Research, a non-profit research organisation focused on accelerating the corporate transition to net-zero emissions. Our team of climate experts analyse company transition plans from a financial perspective to reveal whether companies are doing what they say they are doing on climate. We are always ready with timely, evidence-based views on the credibility of corporate announcements.
