- Auchincloss under pressure
- Hedge fund expected to push for change
- Boardroom shake-up, asset sales a possibility
BP (BP.) shares rallied 6% to a six-month high of 458.4p on reports feared activist Elliott Investment Management has built a stake in the oil major, which has underperformed rivals Shell (SHEL) and TotalEnergies (TTE:EPA) over the past five years.
The US hedge fund’s intervention stoked hopes a dramatic shake-up could be coming at the struggling energy giant, which has faced criticism from analysts and investors over its uncertain strategy and is due to report its fourth quarter and full year results on 11 February.
Led by the feared Paul Singer, Elliott is thought to have amassed a significant stake in BP, albeit the precise position size has not been disclosed. Analysts believe the aggressive activist could push for asset sales and board changes at BP, heaping pressure on chair Helge Lund and CEO Murray Auchincloss.
CATALYST FOR CHANGE
Activist investors often look for companies they believe to be worth more broken up than the current sum of their parts. That’s why we often see activists push for asset sales, hoping the target company will get a good price and then return some of the proceeds to shareholders.
Analysts at Jefferies believe Elliott’s presence on the BP share register could be the catalyst for board changes and a slimming down of the business, with ‘a focus on exiting low carbon assets and certain retail regions’.
Elliott’s dramatic intervention comes at a time when BP is still trying to regain investors’ confidence following a choppy past 15 years that has included the Deepwater Horizon disaster as well as former CEO Bernard Looney’s unexpected dismissal for his personal conduct.
Indebted BP is likely to face pressure from Elliott to focus on upstream capital projects to improve cash flow, and it is thought that the activist will push for the removal of Lund, who helped oversee the company’s controversial net zero strategy with Looney.
Investors have been left unhappy since Looney made an unwise bet in 2020 that global oil demand had peaked, driving the company towards a low-carbon strategy that has failed to deliver.
Since then, Canadian national Auchincloss has also scaled back the FTSE 100 giant’s energy transition strategy in order to win back the market’s confidence.
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, said that while Auchincloss and Looney had already dialled back the ambitious ‘greener’ strategy announced in 2020, there’s a good chance Elliott might push for the company to stop allocating capital to existing renewables and clean energy projects and potentially exit them entirely.
‘Breaking up the business might seem logical to Elliott as it is oil and gas production which delivers the cash flow to help pay the bills and fund dividends. A shift in the primary stock market listing to the US could even be on the cards, although that might be politically complicated.
‘There may also be pressure to shake up the board. Chair Helge Lund has been in place since 2019 and Auchincloss was an internal appointment who has struggled over the last year-and-a-bit to get investors on side.’
Mould continued: ‘News of Elliott’s move ramps up the pressure ahead of tomorrow’s quarterly results and a strategy update scheduled for 26 February. The other possibility looming over BP in its current reduced circumstances is a potential takeover approach, although its levels of debt might prove prohibitive to any potential bidder.
‘The most likely candidate to buy BP is Shell. However, Shell is concentrating on getting its own house in order and is unlikely to be willing to take on what would be an extremely complex integration process at this point in time.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
