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BP cuts London hydrogen team, halts 18 projects

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Shell scales back low-carbon push

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Equinor ( EQNR ) reviews renewables operations, cuts projects

By Ron Bousso

LONDON, Nov 18 (Reuters) - Almost five years ago, BP

embarked on an ambitious attempt to transform itself from

an oil company into a business focused on low-carbon power.

The British company is now trying to return to its roots as

a big oil and gas player with a growth story to match rivals,

revive its share price and allay investor concerns over future

profits.

Rivals Shell and Norway's state-controlled Equinor ( EQNR )

are also scaling back energy transition plans set out

earlier this decade.

Their change of direction reflects two major developments -

the energy shock from Russia's invasion of Ukraine and a drop in

profitability for many renewables projects, particularly

offshore wind, due to spiralling costs, supply chain issues and

technical problems.

BP CEO Murray Auchincloss plans to plough billions into new

oil and gas developments, including in the U.S. Gulf Coast and

the Middle East, as part of his drive to improve performance and

boost returns.

BP has also slowed down low-carbon operations, halting 18

early-stage potential hydrogen projects and announcing plans to

sell wind and solar operations. It has recently cut its hydrogen

team in London by more than half to 40 staff, company sources

told Reuters.

A BP spokesperson declined to comment on the layoffs.

Shell CEO Wael Sawan has vowed to take a ruthless approach

to improve its performance and returns and close a yawning

valuation gap with larger U.S. rivals Exxon Mobil ( XOM ) and Chevron ( CVX ).

The company has scaled back low-carbon operations, including

floating offshore wind and hydrogen projects, retreated from

European and Chinese power markets, sold refineries and weakened

a 2030 carbon reduction target.

Shell is seeking buyers for Select Carbon, an Australian

company it acquired in 2020 which specialises in developing

farming projects used to offset carbon emissions, sources close

to the company told Reuters.

A Shell spokesperson declined to comment.

SKILL SHORTAGE?

Some BP employees wonder whether the company retains enough

staff with the experience and skills necessary to reestablish

itself as an oil and gas major.

Employees peppered CEO Auchincloss with questions at an

online town hall meeting in early October as he detailed some of

his plans for turning the ship around, according to four

employees on the call.

He told them BP would and could develop new oil and gas

production in a reversal of predecessor Bernard Looney's

strategy to build up renewable generation assets, reduce

emissions and slowly cut oil and gas output targets.

In conversations with Reuters, some employees said they

doubted BP has enough reservoir engineers to jump-start oil and

gas output growth after it let go of hundreds of the upstream

division's employees since 2020.

The BP spokesperson declined to comment on the town hall

discussion.

Equinor ( EQNR ), Europe's main supplier of natural gas since 2022, has

launched a review of its low-carbon business, named internally

REN Adjust, which included scrapping several early stage

projects to focus on more advanced offshore wind projects.

When asked for comment Equinor ( EQNR ) said it was adapting to

market realities. "The goal is to strengthen competitiveness and

to compete effectively when the industry rebounds after the

current down-cycle."

But the companies have not abandoned investments in

low-carbon energy altogether. Rather, executives said, they are

focusing on areas such as biofuels, which they feel confident

can generate profit quickly.

Shell, BP and Equinor ( EQNR ) also continue to develop some offshore

wind projects already under way, and say they could invest

further if the returns are competitive.

They are also developing hydrogen projects to use mostly to

lower the carbon footprint of their refining operations.

"What we're finding with our transition growth businesses is

that we need to expect the same level of returns as we do from

our historic businesses if we're going to deploy material

capital over time," Auchincloss told Reuters on Oct. 29.

France's TotalEnergies has become the outlier,

continuously investing in low-carbon and strongly outpacing

Shell and BP's renewables capacity.

BALANCING ACT

The slowdown in the companies' energy transition plans

coincides with warnings that the world is set to miss a

U.N.-backed target to limit global warming to 1.5 degrees

Celsius by the end of the century which is needed to avoid the

catastrophic impact of climate change.

It means companies will likely miss, or will have to revise

down, emission reduction targets, said Accela Research analyst

Rohan Bowater.

And while industry executives focus on boosting near-term

returns by spending more on oil and gas, the outlook for fossil

fuel consumption is increasingly uncertain.

The International Energy Agency said last month it expects

global oil demand to peak by the end of the decade as electric

vehicles sales grow.

Investors remain sceptical about the European oil giants'

ability to sustain profits. Their shares have underperformed

U.S. rivals, even as climate-focused investors have lamented the

shift from renewables.

"To make transition plans stick, companies need the right

incentives for management, a clear mandate from shareholders,

and a focus on demonstrating value," Bowater said.

"BP, for instance, remains caught in the middle, struggling

to balance low-carbon investment with shareholder

expectations."

(Additional reporting by Nerijus Adomaitis. Editing by Jane

Merriman)