What does Elliott’s stake in BP mean for the oil giant’s renewables business?
Shares in British oil giant BP surged by 8% on Monday following the announcement that US hedge fund Elliott had taken a stake in the business
BP adopted a relatively ambitious transition strategy in 2020, pledging to reduce its oil and gas production by 40% by 2030. However, the company has been punished by shareholders for its green ambitions and is currently trading at a significant discount compared to peers such as Shell and ExxonMobil.
The firm recently postponed its investor day from 11 February to 26 February amid growing speculation about the future strategy of the business. A recent Reuters article quipped that BP should move from the acronym “Beyond Petroleum” to “Best Partitioned,” hinting at speculation that parts of the business may be spun off.
Elliott is a US hedge fund focusing on activist investing and distressed asset recovery. It does not currently have a net-zero strategy and has not publicly supported climate initiatives such as the Science-Based Targets initiative. The fund has previously taken stakes in mining giant Anglo American and aerospace firm Honeywell but did not disclose the size of its investment in BP.
BP currently has a market cap of just under £75bn, but individual business units could potentially achieve a higher valuation if sold off to private equity firms, according to Reuters.
Allen Good, director of equity research at Morningstar, suggests that a reduction in clean energy assets may well be on the cards.
“BP’s long-term underperformance has previously raised the question of why no activist investor was involved. Size was likely an obstacle. It seems Elliott is now taking a chance on spurring change, as it has done with other oil and gas companies. There are various options it could pursue, including a sale or a US relocation, but the most likely outcome would be a strategic shift that refocuses on oil and minimises low-carbon investments, as Shell has done.”
Last year, BP’s competitor Shell announced a reduction in its investments in clean energy, decreasing its share in Renewable Energy Solutions from 14% to 11%.
Elliot's announcement came a day before the oil firm was due to report its Q4 earnings with analysts predicting a drop in profits compared to last year.
