ALEX BRUMMER: Squeeze on oil giants threatens to push investment overseas

After the trauma of chief executive Bernard Looney’s departure, BP’s latest results were a chance to demonstrate all is well at Britain’s oil major.

Lacklustre third-quarter profits at £2.7billion, after a bonanza in the same period of 2022, saw the shares plunge in spite of a further £1.2billion of share buybacks designed to please investors.

Interim chief executive Murray Auchincloss is in a difficult place. US oil majors Exxon and Chevron have decided that, for the time being, green transition is for the birds and have doubled down on fossil fuels with deals for Pioneer Natural Resources and Chevron respectively.

If the alarming World Bank projection of a $150-a-barrel oil price amid widening conflict in the Middle East should prove correct, then the timing of the US bids could prove fortuitous.

For the moment, BP is sticking with the Looney legacy of a greener future while taking longer to get there. 

Slump: Lacklustre third-quarter profits at £2.7bn saw BP shares plunge in spite of a further £1.2bn of share buybacks designed to please investors

Along with the latest financial results, BP highlights a $100million (£82.3million) deal with Tesla for its superchargers in the US, and that its Archaea biogas plant in the US is starting production.

Auchincloss indicated it remains committed to offshore wind in spite of a £416million setback in New York.

The BP board must be wondering if it makes sense to steer so sharply away from carbon when the rewards for investors could be promising. 

BP is reported to be exploring joint ventures in US onshore natural gas, in particular, deals near the Mexican border. It has plans to invest around $2.5billion (£2.1billion) a year in shale enterprises.

More focus on US shale production may seem a good option, given the poor political climate in the UK for fossil fuel companies.

In spite of long-standing cultural differences and rivalry, one cannot discount the possibility of an eventual defensive merger with Shell as the two British oil majors seek to navigate through hostile waters. 

A report from Global Witness says that BP has gifted shareholders £20billion in dividends and share buybacks at a time when energy costs have stricken consumers.

The Labour Party is committed to closing what it calls loopholes in North Sea oil taxation. This, in spite of a headline tax rate of 75 per cent.

Looked at from inside BP (and Shell), sabre-rattling by non-governmental organisations and opposition politicians can only drive future investment plans overseas to Texas, Guyana, Africa and elsewhere.

Critics of big oil need to recognise that the dividends are a reliable income source for pension funds and insurers and that the larger the earnings, the bigger the tax boost for the Exchequer.

Shrinking signal

New Vodafone chief executive Margherita Della Valle is taking a leaf out of the Amanda Blanc playbook.

The feisty Aviva boss assuaged company critics, such as the activist investor Cevian Capital, by selling under-performing overseas enterprises when she took the helm at the insurer.

Della Valle has opened her account with the sale of Voda’s Spanish operation to UK buyout group Zegona Communications in a £4.3billion (£3.6billion), largely cash, deal. 

Down the years, Vodafone has been terrific at selling enterprises but less focused on trying to turn around underperforming units and bolstering customer service.

That resulted in badly timed disposals in Japan and the US where it sold out of Verizon Wireless. Proceeds were frittered away just as data was taking off.

Selling Spain may prove easy-peasy compared to the rest of the in-tray. Vodafone is over-exposed to the sluggish German market. 

Della Valle is counting on a merger with Hutchison’s Three in the UK to drive growth and income by eliminating a competitor.

It plans to satisfy critics by promising an £11billion investment in better networks.

But as Microsoft and others are learning, Sarah Cardell, the Competition and Markets Authority chief, is nobody’s pushover.

Bitter medicine

Homebuyers and, indirectly, renters are not the only people who are hurt by surging interest rates.

As higher borrowing costs, business rates and energy bills bite, corporate insolvencies are at their highest level in two decades and 41.3 per cent higher than pre-pandemic levels.

Free marketeers might welcome an end to an era of zombie companies.

But one shouldn’t underestimate the damage to the entrepreneurial spirit.

This post first appeared on Dailymail.co.uk