BP is strategically clearing the path for incoming CEO Meg O’Neill, announcing a $5 billion writedown on green energy assets just months before she takes the helm. This “kitchen sinking” of bad news is designed to ensure that O’Neill inherits a balance sheet free from the drag of overvalued transition businesses.
The writedown targets the gas and low-carbon divisions, reflecting the company’s pivot away from the green ambitions of previous leadership. By cancelling hydrogen projects and seeking to divest from solar, the current board is realigning the company with O’Neill’s background in traditional oil and gas.
The update also served to warn investors of a challenging operational environment. The company reported weak oil trading results and highlighted the impact of falling crude prices. The fourth quarter saw a significant drop in average oil prices, which will weigh on the full-year results.
However, the company’s financial housekeeping has yielded positive results elsewhere. The reduction of net debt to between $22 billion and $23 billion is a major achievement. It provides O’Neill with a stable financial foundation from which to launch her new strategy.
Analysts view this move as a necessary reset. By taking the pain now, the company allows the new CEO to focus on the future without being hamstrung by the past. The stage is set for a new era of fossil-fuel-focused growth.