At Elliott Management’s New York headquarters, the hedge fund’s energy team has embraced a playful spirit with T-shirts featuring the phrase “Gulf of America” and an amusing depiction of Donald Trump as a pirate. This is a nod to the U.S. president’s favorite term for the Gulf of Mexico.
This lively attitude contrasts sharply with sentiments from the previous year. At that time, the activist investment group was hesitant about challenging an oil giant’s spending on green initiatives, fearing backlash from environmental activists and media criticism.
However, the landscape has shifted. Following a significant drop in shares of UK oil company BP to two-year lows in November, Elliott Management quietly amassed a stake worth nearly £3.8 billion in the struggling firm.
Their strategy seems to be bearing fruit, as BP’s stock has rebounded by over 26%, boosted by a renewed focus on fossil fuels echoing Trump’s “drill, baby, drill” mantra in the oil and gas sector.
When Elliott bought their shares, BP was facing criticism from analysts and investors for allegedly destroying value. One insider mentioned that there was a surprising consensus on this negative outlook.
Throughout last year, BP’s stock value plummeted as the company consistently disappointed market expectations, facing nearly $7 billion in write-downs, especially in its refining operations.
Despite these issues, BP’s executives maintained their commitment to a strategy introduced by former CEO Bernard Looney back in 2020, which involved substantial investments in green energy and a reduction in oil and gas production. The aim to cut oil output by 40% by 2030 was later adjusted to a 25% reduction in February 2023. Shortly after, Looney was dismissed due to a scandal involving past relationships.
Currently, Murray Auchincloss, who stepped in as CEO over a year ago, is making changes. He has put BP’s onshore wind segment up for sale and is restructuring its offshore wind initiatives into a collaborative venture. Auchincloss has expressed intentions to maintain a commitment to transitioning towards greener energies while adopting a more capital-light approach.
BP remains under the spotlight, not just from Elliott Management but other activist investors who see opportunities among its assets, despite the challenge of obtaining a significant position in a company valued at £75 billion. One activist described BP as having valuable resources ensnared in ineffective management.
Elliott has been observing BP for over a year and began purchasing shares before Trump’s election. Their campaign is led by John Pike in New York and Gaurav Toshniwal in London. Recently, Elliott also took a $2.5 billion stake in Phillips 66, pushing for a divestment of certain assets.
Elliott’s plans for BP may include divesting from its green energy projects. Although a complete break-up or sale isn’t currently on the agenda, they are willing to hold on to their stake for the long haul.
In comparison with their position in Anglo American, another company they have invested in, Elliott believes that a strong leadership structure is essential for BP, including an engaged board and a CEO who aligns with the strategy. Key steps include effective capital allocation, trimming costs, and resetting strategies to ensure that long-term shareholders are rewarded.
The upcoming capital markets day in February will be critical for Auchincloss as he promises to rethink the strategic direction of the company—a commitment prompted by frustrations over BP’s unclear path forward.
Analysts caution that transforming BP will take time, given its significant debt and limited options for immediate change. The outlook remains cautious, with projections suggesting that current projects may merely balance out declines in production elsewhere, maintaining the status quo rather than leading to growth.
Investors are still wary after a year of lackluster financial performance. Analysts indicate that while BP’s shares may appear cheap, they reflect the company’s ongoing challenges, particularly in managing high debt levels amidst fluctuating oil prices. The future looks uncertain if oil prices were to dip further.
Criticism of Auchincloss is mounting, with some attributing BP’s troubles to a relatively inexperienced board and mismanagement at higher levels. Despite external pressures, Auchincloss remains optimistic about his support from the board, aiming for greater clarity in the company’s strategic direction moving forward.