CNBC-TV18 interview with Bernard Looney, Global CEO, BP
Q: Just when we thought that we were going to recover from the pandemic, the world was going through this fragile recovery, we’ve now been hit with the Russia-Ukraine shock. Let me start by asking you for your perspective and your outlook on where things currently stand on that front, especially when we talk about the commodity markets. You were at a public forum on the 16th of February, and you said that it was going to be business as usual when it came to Russia. And then of course, on the 27th of February, the BP board decided to exit from its venture in Rosneft where you have almost 20 percent stake, did you underestimate the threat and the risk?
A: What’s happening in Ukraine today is obviously a travesty. It’s a tragedy. I think all of us are shocked by the scenes of what we’re seeing on the television screens each and every day. And when the invasion happened, we moved incredibly swiftly. In fact, within 96 hours, BP as a board and as a company had made a decision that it could not continue operations in Rosneft in Russia. And the reason for that was because we simply didn’t think it was the right thing. And we simply thought it was not the right thing for our shareholders. So we moved incredibly swiftly. When that happened. One of the first companies, I think, to do so, in fact, maybe the first. And today, we are all just hoping that we will get to some sort of resolution, where quite frankly, people are stopped getting hurt.
Q: And that is the big concern at this point in time because this is a humanitarian tragedy that we are seeing unfolding before our eyes. But on the resolution that you just spoke of what is the way forward? And I understand that this is a sensitive time and this is a sensitive and delicate matter, but reports suggest that you are in talks with Rosneft. Could you give us some indication of what the potential resolution could be?
A: What we’ve said is that we’re going to exit our shareholding in Rosneft and in our joint ventures. We’ve made that very, very clear. And I think I should leave it at that. Obviously, any, any conversations that we have, or any dialogues that we have, are confidential, I hope you can understand that. And I’m sure your viewers can understand that. But our intention is very, very clear.
Q: So let me then ask you about where you see oil prices? They are very, very volatile. What’s the expectation given where things are today in terms of supply, as well as the fact that there is no clarity on whether the EU will finally move and sanction Russian oil? At this point in time, the verdict on that front seems to be split given the over-dependence. But what’s the outlook from hereon given the supply-demand dynamics as far as oil is concerned?
A: I think in many ways, you’ve answered the question yourself when you used the word volatile. And I think that is probably the best way to describe both the current situation and indeed, the situation over the coming months. There are so many things at play here. There are so many factors, so many parameters. You mentioned just one aspect, which is what will happen with EU regulations around crude. It’s not just crude oil, but its products and its natural gas. We’re seeing in the marketplace, self-sanctioning – companies deciding not to do either business today or future business in Russian crude. But beyond that, on the global stage, we’ve got high oil prices. And does that translate one day into reduced demand? Does it translate into reduced economic growth? Which indeed very well may happen. We’ve got a situation in Iran, we’ve got how will us shale respond? All of these things are very, very difficult to predict, as you well know. And I think we’ve all learned not to try to predict them. But I think what we can say is that it is a challenging marketplace, and therefore I think you can expect volatility over the short to medium term.
Q: Volatility, yes, but you know, I’m still going to try and pin you down to some sort of a range would it be fair to assume that we’re unlikely to see prices below $100 a barrel as we move through 2022 given the various scenarios that you just spoke of?
A: I think there are many reasons to think that the price environment for crude oil will be constructive and by constructive we would say strong over the coming months and possibly years, many reasons to believe that. But none of us can predict that. And therefore, as a company, we are very focused on running our business at a breakeven price, which is much lower. We want to run our company and have it breakeven at around $40 oil. We think that’s a prudent way to run our company so that we can handle the swings as and when they happen because history tells us there will be swings. But the reality is, we do expect volatility. And I think you can expect the price environment to be constructive in the months and possibly years ahead.
Q: We will have to see how the price scenario plays out as far as crude is concerned. But let me ask you about what this could potentially mean, as far as your transitioning to more renewable energy is concerned, because that is one of the concerns that what this potential write-down of $25 billion, which is the rough estimate, the report suggests that could have a material impact on your plans to head to more renewable sources of energy? Would that be an accurate assumption?
A: No, is the honest answer. So one of the things that we were very, very clear on when we made our announcement that Sunday is that the plans for BP remain absolutely unchanged. The number that you referred to have been bandied about in the media, it is a non-cash number that you’re talking about. And obviously, what we’re truly interested in when it comes to our future, is the cash flows of the company. And what we can tell you today, and what we’ve said in the past, is that our dividend policy remains unchanged, we will grow our dividend at 4 percent per annum at $60 oil, we will do up to $4 billion of buybacks at around $60 oil out through 2025, we will invest between 14 and $16 billion. So nothing has changed, nothing changes. And that is really important for our investors to understand that. And my sense is that they do.
Q: So let me take that conversation forward. Because you said that nothing changes on the plans that you’ve actually put forward. And you’ve said that you’re committed to performing while you transform. You said we expect to invest more in low carbon business in less than oil and gas over time. What does that mean ballpark, in terms of what the capex could be over the next five years in the low carbon side of the business versus oil and gas?
A: We will invest overall between 14 and $16 billion as a company through this decade. And over the next few years, the number that we will invest in non-hydrocarbon will be over 40 percent by 2025. And when we get to 2030, it will be over 50 percent. So what you’re seeing as a company, that is all in on the transition on making it work. We have a three-part strategy, we will remain invested in hydrocarbons because the world needs it and that is where we get the cash flows to allow us to transition. We have a fantastic convenience and mobility business which is represented here in our partnership with Reliance called Jio-BP in India that we’re very excited about convenience and EV charging and all of those things and we have a low carbon business. But when specifically to your question, over 40 percent of our capital is going into non-hydrocarbon in just a few years’ time. So this is happening. We are all in on making the transition work. We are all in on trying to solve the problem for the world, which has really been brought to light by today’s situation and that is the world wants and needs clean, affordable, secure and reliable energy. That’s the energy trilemma. Our job is to help the world try and solve it rather than have to make choices between one thing or another.
Q: In the context of your proposition to reimagine the energy market going forward. How hard is it to find this balance between staying committed to your core business, which is your core business today as you transition to the future?
A: It’s actually a huge advantage. It’s a huge advantage for many different reasons. So let me give you a few examples. If I look at biofuels, the world is going to need sustainable aviation fuel if it wants to reduce carbon emissions in aviation. We have one of the world’s largest trading organizations that can go today and source different feedstock’s, which is the number one challenge in biofuels. We will build those projects next to the refineries that we already have from our oil and gas business. And then you need to sell that product to an airline. And because of our history, in aviation, we’re in every airport in the world, we have a relationship decades-long with every aviation airline in the world. So why wouldn’t we take advantage of that structural incumbent advantage that we have built up over 100 years, we will do that. In EV charging 550 million people live within 20 minutes of a BP site, of a BP gas station. The challenge for a company starting up an EV charging tomorrow is access to land, we have that we have a brand, we have a convenience offer. And then finally, you look at the cash flows and the financial strength of our company. And it is that hydrocarbons business that doesn’t just continue to provide the energy that the world needs just like you do need it here in India today. But it also gives us the cash flows that give us the financial strength to make that transition happen. So I don’t see the transitioning part of the company or the greening of the company as somehow a massive challenge but actually the more we work in it, it is a massive opportunity.