BP slashes ‘net zero’ renewable energy spending by $5 billion, turns to fossil fuels: What's behind the strategy shift?

British energy company BP confirmed on Wednesday, February 26, 2025, that it would slash spending on ‘net zero’ and green ventures and increase its oil and gas production. BP's strategic change comes amid hopes that it will bolster its flagging share price, earnings and raise shareholder returns. However, the move has met with strong criticism from climate activists

In a statement “Reset BP,” it said it will slash spending on net zero transition by $5 billion a year to two billion. By contrast, it said it will increase its investments in oil and gas production by 20 per cent to $10 billion. Hence, the oil major cut its annual investment in energy transition businesses by $5 billion, from its previous forecast, to between $1.5 billion- $2 billion per year.

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BP cuts green energy spending: What's caused the strategic shift?

This is the latest big company in the energy sector to change its position in response to the need to lower carbon emissions and curb climate change, returning the focus to oil and gas. BP aims to grow oil and gas production to 2.3 million and 2.5 million barrels of oil equivalent per day (boepd) in 2030. It pumped 2.36 million boepd in 2024.

BP CEO Murray Auchincloss said that the company is focusing its spending on BP’s “highest-returning businesses to drive growth" and that it will be “very selective" in its investments in renewables. “This is a reset BP, with an unwavering focus on growing long-term shareholder value," said the CEO.

The strategy represents a pullback from the company's much-vaunted plan five years ago, under then CEO Bernard Looney, to shrink oil and gas production in favor of net zero businesses. Auchincloss told investors that BP's faith in the green energy transition was “misplaced” and that it went “too far, too fast” in recent years. 

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Demand for oil and gas, he added, will be “needed for decades to come." He said renewables still pose a “significant opportunity” and confirmed that the company still wants to meet net zero carbon emissions by 2050. The update is clearly aimed at bolstering investor support in light of BP's flagging share price.

“Global carbon emissions need to be reduced, and as well as looking for more energy, countries, companies and customers are looking for lower carbon products and services to support their own decarbonization objectives," he said.

Auchincloss said the transition to renewable energy has been slower than BP initially expected following the war in Ukraine, the pandemic, volatile energy markets and changing attitudes towards renewable energy in some countries.

"What that meant is hydrocarbon demand continues to be very, very strong, stronger than we would have envisioned five years ago, and the transition has not proceeded at the pace we would have thought," said CEO Auchincloss.

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BP's stock underperformance against its peers over the past few years such as Shell, ExxonMobil and Chevron, has stoked market speculation that BP may move its share listing to New York from London, or make it a takeover target. The US hedge fund Elliott Management recently took a five per cent stake in BP, and it is believed that it has sought to push BP back towards fossil fuels to boost profit.

BP biz outlook

Auchincloss has already spun off BP’s offshore wind business in a joint venture while he's looking to offload its onshore wind arm. BP's change of strategy is facing sharp criticism from environmental campaigners, who had previously warmed to the company's insistence that the future was green.

"Three big things we've done: reducing capex, reducing costs, material divestment with an outcome of growing cashflow and returns," Auchincloss said. “We will be very selective in our investment in the transition, including through innovative capital-light platforms. This is a reset BP, with an unwavering focus on growing long-term shareholder value,” he added.

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BP plans to raise its dividend by at least four per cent per share annually and expects first-quarter share buybacks of $750 million to $1 billion, a downward revision from its previous $1.75 billion forecast. It aims to spend between $13 billion and $15 billion annually through 2027, trimming $1 billion to $3 billion from 2024 levels, with 2025 capital expenditure expected at around $15 billion.

BP also said it was reviewing its lubricants business, Castrol, and targeting $20 billion in divestments by 2027. It plans to bring in a 50 per cent partner for its solar business, Lightsource BP, with a sale process expected in the next few months.

With inputs from AFP and Reuters