Should BP leave Britain ?

 

Over recent months the new management of BP has been undertaking a full scale strategic review. The company has underperformed over the last two decades and has pursued an unsuccessful strategy of combining the development of oil and gas supplies – their core expertise – with experimental investments in low carbon activity.  Among many other questions for the review, one issue back on the agenda is that of location and identity.  Should BP remain a “British” company headquartered in London or move elsewhere – perhaps to New York or Singapore?  The debate is not new of course.  In the past the conclusion of such discussions has always been that while the commercial logic supports relocation  sentiment and a concern that the UK Government would try to block any move have kept BP in London.  Now, however, the balance of the discussion has been shifted by the hostility of the UK Government to the oil and gas industry and over the last week to BP itself.

BP’s history in Britain goes back to the creation of the Anglo-Persian oil company in 1908 and to a rescue by Winston Churchill, then First Lord of the Admiralty, on the eve of the First World War. Churchill believed that the British Navy would require oil instead of coal to fuel it’s ships. The oil which Anglo Persian had found at Masjed Soleiman had to be protected as a strategic national asset. A Government investment of £ 2.2 million bought 51 per cent of the company.

Since then the company has at different times been an agent of British policy – in Iraq in the 1920s, in Iran through the fall of the Mossadegh regime in the 1950s, and even more recently in the former Soviet Union.  I have a vivid memory of attending a meeting with Prime Minister Tony Blair soon after his election in 1997 at which he actively encouraged BP to invest in Russia as part of his attempt to build a warm relationship with the new post Soviet administration in Moscow.

For most of the last century BP was inseparable from the British Government.  The  company was run as a commercial enterprise but with two government directors on the board. Corporate and Government policies were closely aligned.   The expertise of the oil and gas industry which made possible the development of the North Sea was seen as a key element of Britain’s competitive advantage in the world.   BP’s advertising slogan – Britain at it’s Best – was matched by real achievements. For many years the company was the first choice of employer among new graduates.

But times change. The British Empire has ceased to exist and the closeness of the company to the UK Government has waned.  The last Government appointed directors left the BP Board in 1987 as privatisation ended the Government’s shareholding.  Since then most of the company’s shares have been held by investors outside the UK. The word “British” was dropped from the company’s formal name in 2001.

The shift away from the UK has also been reflected in the company’s business activity. Involvement in the North Sea has declined as the province has matured and major fields such as Forties and Magnus have run down.  The company retains a limited portfolio of activity in Britain including investment in net zero projects in Teeside and Aberdeen. In total, however, these amount to less than 20 per cent of BP’s worldwide activity. As the company focused on reducing it’s debts and improving the quality of it’s portfolio under the leadership of Albert Manifold, the new Chairman and Meg O’Neill the new Chief Executive that percentage could well decline further.  The opportunities for finding new oil and gas resources lie in places such as Brazil and Namibia where BP has recently made major discoveries.

History and sentiment may have kept the headquarters of BP in Britain but the case for relocation is now strong.

Major international oil companies enjoy significantly higher valuations  in the US. The price earnings ratio for BP shares has remain below that of US companies such as Exxon and Chevron.

Even more important for the future is that the geographic shape of the energy market has changed dramatically, with most of the growth in oil and gas consumption coming in Asia driven by population growth and the spread of prosperity in countries such as China and India.   On the estimates of the International Energy Agency well over half of  of the growth in worldwide energy demand over the next 25 years will come from the Asia Pacific region while demand in Europe and North America declines.

To thrive companies must adapt to the world in which they live.  As history has shown no one owes them a living, however large or powerful they might once have been.  Older readers will remember once great companies such as ICI and British Leyland.  Given the changing shape of the global energy market it is hard to identify any commercial or strategic argument which would push BP to remain headquartered in the UK.  The decisive factor in the current debate may therefore be the deteriorating relationship with the UK Government which has shifted (on the Government side) from one of mutual dependence and respect to something closer to hostility.

Last week the UK’s Secretary of State for Energy Security and Net Zero tweeted in response to  BP’s strong first quarter profits that “profiteering from a crisis is morally and economically wrong”.  He did not mention the amount of tax the company pays in UK or the number of jobs created in the UK not just in the oil and gas sector but also in the development of low carbon activities.  He did not mention the company’s role in helping to secure the UK’s energy supplies in the current complex international environment.  The tweet was then taken down but the statement linking BP to the allegation of profiteering from the current crisis has not been challenged by number 10 or by any other Government Minister. One has to assume that the comment reflects the view of the Government as a whole.

If BP or any other company, in any sector, has been illegally exploiting the current energy crisis they should be prosecuted.  The fact that no evidence has been presented to back up the accusation is telling but the hostility remains and reflects the shift of attitude not just towards BP but to the oil and gas sector as a whole.  Equinor the Norwegian state company has for instance been accused of “corporate vandalism” for seeking to develop the Rosebank field in the North Sea. The industry has become accustomed to unpopularity but the latest unsubstantiated criticism of a major company from a senior Government Minister is unprecedented.

In the past Governments of any colour would have used every possible means to discourage BP from leaving the UK. Presumably the UK Government would now be indifferent at best. BP is not the power in the world which it once was, but then nor is the United Kingdom. The quality of BP’s own commercial decisions will determine whether the business thrives or fails.   The company does not need the British Government behind it.  Indeed the roles are reversed.  The UK Government needs to ensure that London remains a natural home for major international companies.  Using exceptional powers to block any proposed relocation would deter potential investors who prefer free and open markets. BP’s departure would signal to the world that Britain is not a great place to do business or from which to do business. That is why the Government’s hostility to a company which has been and should be a major national asset is an act of self harm.