Oil major BP to slash renewable spending and double down on fossil fuels in strategy reset

British oil major BP on Wednesday announced plans to increase annual oil and gas investment to $10 billion through 2027 as part of a fundamental strategic reset.

The beleaguered energy giant also said it planned to lower its annual capital expenditure to sit within a range of $13 and $15 billion over the same time horizon, while targeting $20 billion in divestments by the end of 2027.

The oil major said investment in transition businesses would be “significantly lower” over the coming years. The firm said spending is now likely to come in at $1.5 billion to $2 billion per year — more than $5 billion per year below the previous guidance.

“Today we have fundamentally reset bp’s strategy,” BP CEO Murray Auchincloss said in a statement.

“We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency. This is all in service of sustainably growing cash flow and returns,” he added.

BP is poised to outline further details of its new direction at its Capital Markets Update on Wednesday afternoon.

An investor day presentation, which will be hosted by Auchnicloss and other members of the firm’s leadership team, is scheduled to take place from 1 p.m. London time.

Analysts have described BP’s investor day as a pivotal moment for the firm, particularly after it emerged that activist investor Elliot Management had built a stake in the oil major.

BP’s Auchnicloss, who took the helm on a permanent basis in January last year, is under significant pressure to reassure investors that the company is on the right track to improve in its financial performance.

The London-listed firm has lagged its industry rivals in recent years, as investors have continued to question the firm’s strategic direction.

Shares of BP fell 2% on Wednesday.

Lindsey Stewart, director of investment stewardship and policy at Morningstar Sustainalytics, said Wednesday that BP’s decision to reduce capital expenditure on renewables and double down on its fossil fuel assets “will be shocking but not surprising to investors focused on sustainability.”

He added that “having already cut back its energy transition targets in 2023, BP’s subsequent underperformance compared with peers has created pressure for BP management to focus on sustainability of a financial rather than ecological nature.”

Reuters on Monday reported that BP is poised to abandon its target to increase renewable generation 20-fold by 2030, citing two unnamed sources close to the matter. A spokesperson for the company declined to comment when contacted by CNBC.

Five years ago, BP became one of the first energy giants to announce plans to cut emissions to net zero “by 2050 or sooner.” As part of this push, BP pledged to slash emissions by up to 40% by 2030 and to ramp up investment in renewables projects.

The company scaled back this emissions target to 20% to 30% in February 2023, saying at the time that it needed to keep investing in oil and gas to meet global demand.