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BP hopes ‘safe hands’ boss can help oil company catch up to rivals

by SuperiorInvest

Murray Auchincloss is the candidate to continue at BP in more ways than one. The newly appointed CEO officially takes charge of the oil company after months of serving as its interim administrator following the turmoil and scandal unleashed by the departure of his predecessor, Bernard Looney.

BP has never in its 114-year history hired a CEO from outside the business. The promotion of Auchincloss this week means the FTSE 100 company has stuck to that script. But is a safe pair of hands enough to close BP’s valuation gap with its rivals that widened during the Looney administration as he pushed the group toward greener energy?

It is a strategy of which Auchincloss is a key architect. The 53-year-old Canadian executive joined BP in 1998, serving as chief financial officer from July 2020 and then acting chief executive, following Looney’s resignation in September for failing to disclose past relationships with BP colleagues, some of whom had had. later promoted.

By confirming that Auchincloss would permanently lead the business, BP had chosen the obvious and simplest option, analysts and investors said.

“Overall, the continuation candidate is probably what we were looking for rather than a new broom coming in,” said one of the top 25 shareholders. “The reaction here is surprisingly neutral.”

Looney announced plans in 2020 to transform BP from an oil and gas producer to an integrated energy provider by reducing fossil fuel production and investing in green technologies. Chairman Helge Lund has said BP and Auchincloss remain committed to the plan.

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Auchincloss was “the best possible outcome for BP shareholders in the short term as it represents continuity in the investment case,” said Biraj Borkhataria, an analyst at RBC Capital Markets. “An external candidate would have created more uncertainty about the direction of the business and potentially more noise around another change in strategy.”

The challenge for the new boss is that shareholder returns under the strategy have been mixed and investor support varied.

BP lags rivals Shell, TotalEnergies, ExxonMobil and Chevron in terms of total shareholder returns over the past four years. It trades at about seven times its forecast 12-month earnings, compared with eight times for Shell and 11 times for Exxon and Chevron.

Before Looney’s sudden departure, there were signs of progress. In February, Looney and Auchincloss slowed the group’s planned withdrawal from oil and gas and provided more clarity in a strategy update on when and how BP’s five “transition” businesses – biofuels, convenience, freight, renewables and hydrogen) would generate significant profits for the company.

BP shares rose 10 percent in the 48 hours following the news. Along with Shell, it was the best performer of the big five companies between January and August, in terms of total shareholder return.

But Looney’s departure, which shook the company, and a poor set of third-quarter results, meant BP shares ended the year down 2 percent, while Shell’s rose 11 percent.

Addressing shareholders in Denver in October, Auchincloss, then interim CEO, once again said the plan to transform into an “integrated energy company” remained unchanged but sought to provide greater clarity on long-term earnings. , raising BP’s profit forecast for its oil business. and the gas business in 2030.

“Their priorities are generating earnings growth, distributions to shareholders and the balance sheet, rather than any additional turnaround beyond last February,” said Oswald Clint, an analyst at Bernstein.

For now, while some shareholders – particularly in the United States – would like to see BP further back away from its green strategy, other investors said they were looking for a period of calm after a tumultuous four months.

“I think we have a safe pair of hands in Murray,” said one of the top 10 shareholders.

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His appointment was welcomed in part, analysts said, because after three years as CFO, Auchincloss was already known and liked by many in the market.

“Sometimes you just need someone in that seat that you feel comfortable with,” said RBC’s Borkhataria. “Maybe you like the strategy, maybe you don’t, but at least you know the person and how he thinks.”

In announcing the appointment on Wednesday, Lund said the board had conducted a “thorough and highly competitive” selection process, which included consideration of external candidates. People with knowledge of the process said Lund, former oil and gas chief executive of BG Group and Equinor, had always favored promoting someone from within the business.

Lund joined BP’s board in July 2018 and has been chairman for five eventful years. In that role he oversaw Looney’s now-controversial appointment in 2019, the review of BP’s strategy in 2020, and the response to allegations about Looney’s past relationships in May 2022 and September 2023 that led to the CEO’s departure. .

The top 10 shareholder said Looney’s departure and the four-month gap before a permanent replacement was confirmed was “unfortunate” but that it continued to support Lund, whose industry experience was valuable to the business.

“It’s our role as shareholders to make sure the correct corporate governance processes are followed, but I don’t think I’m jumping in and demanding his resignation,” the shareholder said.

The first test of Auchincloss will come when BP reports its annual results on February 6. After failing to meet market expectations in October, strong financial performance was needed to steady the ship, Bernstein’s Clint said.

“Hopefully we’ll see a good set of numbers and a continuation of buybacks and the stock will move in the opposite direction,” he said.

Additional reporting by Harriet Agnew in London

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