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(Bloomberg) — BP Plc’s dramatic under-performance compared with other oil majors has reached a crunch point — a looming showdown with one of the world’s most aggressive activist investors.

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Elliott Investment Management, led by Paul Singer, has built a significant stake in the British energy giant, typically the first step in a playbook it has deployed to successfully push for change at many other big public companies. Over the years, the fund’s efforts have led to strategy shifts, CEO departures and even corporate breakups.

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The intervention comes after BP has stumbled through a series of missteps over the past 15 years, from the Deepwater Horizon disaster to former Chief Executive Officer Bernard Looney’s sudden dismissal for his personal conduct.

Since Looney’s faulty bet in 2020 that global oil consumption had peaked and the world was accelerating toward net zero emissions, BP’s valuation has lagged peers. Several of those rivals have been running the numbers over what a takeover might look like, according to people familiar with the matter. It’s not clear whether any are seriously considering a move, but that such deliberations are happening is an indicator of how far the London-based behemoth has fallen. 

Over the past five years, BP shares have dropped almost 8%, compared with a gain of about a third for its closest rivals Shell Plc and TotalEnergies SE. 

Elliott is seeking to boost shareholder value by pushing BP to consider transformative measures, according to people familiar with the matter, who asked not to be identified because the discussions were private. It believes the company is significantly undervalued and its performance is disappointing, they said. 

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Representatives for the activist investor declined to comment, and the exact size of its stake couldn’t be immediately learned, but its track record gives an indication of the kind of pressure that might be faced by BP’s current CEO, Murray Auchincloss. 

The 54 year-old Canadian stepped up to lead BP after Looney was abruptly fired, taking the role on a temporary basis in September 2023 then permanently in January 2024. 

Since then, the former finance chief has kept a low profile, taking steps to reshape the company internally but saying little publicly. He has been gradually watering down Looney’s pivot away from oil by negotiating access to some of the largest crude reserves in the Middle East, spinning off renewable energy assets, and most recently pledging to lay off about 5% of the company’s permanent employees.

This wasn’t enough for some analysts and investors, who see the narrow window to reset the direction of the company nearly coming to a close. A strategy update scheduled for this month is seen as a crucial moment for Auchincloss, so it didn’t help matters when the event was delayed by two weeks to Feb. 26, and moved from New York to London, to allow the CEO to recover from an undisclosed medical procedure.  

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Wrong Strategy

“The event should stand as a significant line in the sand following the initial energy transition strategy presented in 2020, one that included macro assumptions that look out of tune with reality,” according to RBC analyst Biraj Borkhataria. “The crux of BP’s issues relate to poor capital allocation alongside these strategic shifts, which have deteriorated its earnings potential.”

Auchincloss is expected to put greater focus on the core oil and gas business, with less emphasis on renewable energy. But there are many questions about whether BP has the resources to accomplish such a pivot quickly, and whether investors still have patience. 

Elliott certainly isn’t known for a wait-and-see approach, and there are many levers the fund could pull to force a more rapid shift. 

BP’s management team and board of directors has changed little since Looney’s era, potentially making it a target for Elliott. Chairman Helge Lund is known as an architect of the company’s net zero strategy alongside the previous CEO.

At other companies, Elliott has successfully campaigned for a breakup. An entity the size of BP offers plenty of possibilities, but its core oil and gas business has highly integrated value chains — with everything from the wellhead to refineries and fuel stations linked by a globe-spanning trading team — would make it a complicated endeavor. 

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The most obvious split would be between clean energy and fossil fuels, a process that has already partially begun under Auchincloss. He has announced the spin-off of BP’s offshore wind business into a joint venture, and is working to offload onshore wind assets.

BP still has full ownership of Lightsource, a solar energy and battery storage unit. BP has described this an “engine for onshore renewable power” alongside those same land-based wind farms it is now looking to sell in the US.

The company has an electric vehicle charging unit, which has big expansion plans in the US after Looney purchased TravelCenters of America for $1.3 billion in 2023. BP has 37,500 chargers installed worldwide and aims for more than 100,000 globally by 2030.

Elliott’s intentions remain unclear, but the first moment of leverage for the activist investor may be just days away. 

BP reports fourth-quarter financial results on Tuesday, having already flagged broad weakness across its business for the period. Most other oil majors experienced the same deteriorating market, but due to the weakness of its balance sheet BP alone is seen having to slow the pace of its share buybacks, weakening a tool that has been vital for keeping investors happy in recent years. 

—With assistance from Swetha Gopinath.

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