Bluebell, an activist, believes BP is undervalued by 50% compared to its peers.

Company: BP plc

The company offers energy products and services to its customers through its segments, which include gas & low-carbon energy, oil production & operations, and customers & products. Its gas business involves upstream activities such as natural gas production, integrated gas and power, and gas trading. Its low-carbon business includes solar, wind, hydrogen, CCS, power trading, and its share in BP Bunge Bioenergia. Its oil production & operations segment includes upstream activities that produce crude oil, including Bpx Energy. The customers & products segment includes customer-focused businesses such as convenience and retail fuels, electric vehicle charging, Castrol, aviation, and business-to-business and midstream, as well as its products businesses, refining & oil trading, and bioenergy.

Stock Market Value: $98.5 billion ($34.64)

Activist: Bluebell Capital Partners

Percentage Ownership: n/a

Average Cost: n/a

Activist Commentary:

Bluebell Capital Partners is a European public equity-focused activist investor founded in November 2019 by Giuseppe Bivona and Marco Taricco, who previously led Bluebell Partners, an investment advisory business established in 2014. The firm identified shareholder activism as a burgeoning opportunity in Europe, traditionally a North American domain.

What’s happening:

Bluebell Capital Partners wrote a letter to BP Chairman Helge Lund, urging the company to take specific actions, such as reducing its oil and gas production commitment by 25% by 2030 compared to 2019 levels, and challenging the company to decrease its investment in its transition businesses (biofuels, convenience, charging, renewables, and hydrogen) by 60% between 2023 and 2030.

Behind the scenes:

Bluebell is a firm that is both passionate about the environment and financially savvy. They have a history of activism and have invested in the environment. However, they also understand the power of capital markets and are a financial firm. In a letter to BP, Bluebell expressed their belief that the company is worth at least 50% more than its current stock price and that it trades at a discount of 40% compared to its best-in-class peers, ExxonMobil and Chevron. They attributed this discount to an ill-conceived strategy that aimed to drastically shrink BP's core business in oil and gas and rapidly diversify into sectors with lower targeted returns and where BP had no right to win.

Bluebell argues that BP's strategy of achieving net zero emissions by 2050 is an unrealistic policy that should be declared unattainable by governments, and a more realistic target should be proposed in its place.

Bluebell is giving BP a warning: align your climate and production targets with reality or at least with your peers, or face the consequences. Bluebell highlights that the International Energy Agency (“IEA”) acknowledges that the path to net zero by 2050 is becoming more challenging, as 35% of the emissions reductions required by 2050 depend on technology that is not yet commercially viable or available. Furthermore, even solutions that are currently available, such as nuclear power, are being underutilized and decommissioned, casting doubt on global political will towards such an ambitious goal.

As an environmental activist, Bluebell argues that BP's shift towards non-core alternative energy products is unlikely to significantly address the climate crisis. Meanwhile, as a financial investor, Bluebell contends that this strategy is unprofitable and negatively impacts shareholders.

Bluebell highlights that BP's capital expenditure to shift away from its core oil and gas services to transition to fuels, renewables, and other projects yields lower returns on investment, diminishes value creation for shareholders, and exposes the company to failure in areas where the board and management lack expertise or competitive edge.

BP plans to allocate approximately one-third of its $130 billion capex budget to businesses such as bioenergy, hydrogen, renewable, and EV Charging. These projects are expected to generate between 6-8% unlevered internal rate of return (IRR) for renewables and double digits for hydrogen, while generating between 15-20% for oil and gas. In contrast, peers Chevron and Exxon plan to allocate 10% of their capex budgets over the next five years.

BP's decarbonization strategy, initiated in 2020 by former CEO Bernard Looney, is based on a questionable assumption that oil and gas demand will only grow by 2% from 2022 to 2030. This is significantly lower than the forecasts of their peers, Shell and ExxonMobil, which predict growth of 7% and 6%, respectively, and even the IEA has a larger forecast of 5%. Despite this, BP has already reduced its medium-term targets for reducing oil and gas production, and remains committed to its Scope 3 targets of 10-15% reduction by 2025 and 20-30% reduction by 2030. However, Exxon and Chevron have refused to commit to Scope 3 targets, and when a shareholder proposed such a commitment, it was rejected by 89.5% of the vote at Exxon and 90.4% at Chevron.

From the time Mr. Looney became CEO on February 13, 2020, to his resignation on September 12, 2023, BP's total shareholder return of 32% lagged all its peers (45% for Shell; 72% for Total Energies, 79% for Chevron, and 135% for ExxonMobil). As of Bluebell's October 4, 2023, letter to BP, BP traded on a price-earnings ratio of 6.7 times, a 44% discount to Chevron and ExxonMobil, which on average traded at 12 times. More significantly, this discount averaged 48% since the new strategy initiated by Mr. Looney, but only averaged 21% in the years 2006 to 2019 and was as small as 15% in the year 2018. To further illustrate how the market views BP's strategy, on February 7, 2023, when BP announced its partial retracement from

Bluebell had planned to request the resignation of CEO Looney in October, but it happened in September. Now, Bluebell is calling on the board to revise its 2023-2030 plan and implement the following six corrective actions: (i) remove its medium-term Scope 3 targets and qualify its 2050 target (Net-Zero) as a target to be reached 'in line with Society'; (ii) realign supply to demand by revising upward BP's oil and gas production target to ~2.5 mmboed by 2030 versus the current target of 2.0 mmboed (millions of barrels of oil equivalent per day); (iii) increase investment in oil and gas by ~$1.5 bn p.a. (2023-2030) and reduce cumulative investment in Bioenergy, Hydrogen and Renewables & Power by ~60% (2023-2030), the majority of which will be financed by halting investment in Renewables & Power; (iv) increase cash to be returned to shareholders by a cumulative ~

Bluebell has a long history of environmental activism, including agitating Solvay to end its pollution of the Rosignano Beach, urging Glencore to divest its coal unit, and pressuring BlackRock to clarify its ESG strategy due to a risk of greenwashing. As such, a campaign to rollback BPs climate targets may surprise onlookers.

Bluebell is an active ESG investor who prioritizes responsible maximization of shareholder value. They believe that achieving net-zero emissions is crucial for the planet, but they do not believe that oil and gas providers should become renewable companies at the expense of shareholders. Instead, they believe that such companies should focus on minimizing or eliminating their own environmental impact and meeting demand while ensuring a smooth energy transition. Bluebell is urging the board to assess their peers' commitments to decarbonization and to be honest about the global reality of the issue, even though leading climatologists recognize it as a pressing need.

The letter to BP is considered transformative by many, and only an environmental activist with the credibility of Bluebell could publicly voice such an opinion. This shows how the ESG pendulum has swung so far one way and is now swinging back to its rightful position. European investors and companies have been well ahead of the United States on ESG matters, and the fact that this is happening in Europe is a sign of things to come in the U.S. If it can happen there, it can certainly happen here. However, it is a refreshing departure from ESG based on hard rules, quantitative metrics, and exclusions. This is a credible environmental activist eschewing those non-qualitative measures. For years, Bluebell has been known for pushing companies further into the ESG waters. It is nice to see that they are also there to take out their lasso and rein a company back in when it wanders too far out.

Ken Squire is both the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.