(Bloomberg) -- BP Plc is set to announce a potential sale of its lubricants business and abandon plans to cut oil and gas output as it embarks on a shift away from renewable energy amid pressure from activist investor Elliott Investment Management, according to people familiar with the matter.
In a crucial strategy presentation on Wednesday, Chief Executive Officer Murray Auchincloss has promised to “fundamentally reset” the struggling oil major, after five years of heavy investment in clean energy left investors unhappy with the company’s returns. The next moves from Elliott, which is renowned for its aggressive tactics, will depend on whether the CEO comes up with a bold enough plan.
BP will look to divest its lubricants unit, which operates under the Castrol brand and could be worth about $10 billion, the people said, asking not to be identified as the matter is private. Proceeds from a potential sale, which was first reported last week by Bloomberg, could help to strengthen the company’s balance sheet, which is weaker than its peers, and bolster investor returns.
The energy giant’s plan to cut oil and gas production will also be scrapped, while targets to increase renewable power generation will be scaled back, the people said. Under previous CEO Bernard Looney, BP made a failed bet that oil consumption had already peaked and pledged an output reduction of 25% by 2030, compared with 2019 levels.
If Elliott is unsatisfied with BP’s moves, the hedge fund may push for board and management changes, the people said. Chairman Helge Lund, who is known as one of the key backers of the company’s now-criticized net zero strategy, could come under particular pressure.
Representatives for BP and Elliott declined to comment.
BP shares in London fell about 2% on Tuesday, valuing the company at almost £70 billion ($88 billion).
Auchincloss is under pressure to lay out a new vision for BP after just over a year in the job, in the most highly anticipated strategy shift for an oil major in several years. Elliott, which has built up a stake worth about £3.7 billion ($4.7 billion), is demanding drastic cost cuts and divestments to support its future as a standalone company, Bloomberg News reported earlier in the month.
Auchincloss has already taken some decisions that indicate how things will change, such as spinning off BP’s offshore wind business and stopping some biofuels and hydrogen projects. The company is likely to look at other options for a sale or spinoff in renewables, including solar business Lightsource BP or US biogas producer Archaea, which it acquired for about $4 billion in 2022, the people said.
There is a precedent for the sale of lubricant assets. US automotive servicer Valvoline Inc. agreed in 2022 to sell its unit that produces lubricants and chemicals for vehicles to Saudi Aramco for $2.65 billion.
Earlier on Tuesday, BP finalized terms of a deal that could boost its oil and gas production and see it return to its Middle Eastern roots. The company agreed with the government of Iraq to redevelop the Kirkuk fields, which have suffered from years of underinvestment and neglect, potentially unlocking about 3 billion barrels of oil equivalent of additional resources.
Bloomberg was first to reveal earlier this month that Elliott had built a stake in BP and was pushing for transformative measures. Reuters reported last year that BP would abandon its pledge to reduce oil and gas output, and on Monday that it would scale back its targets for growth in renewable energy generation.
(Updates with share price in seventh paragraph.)