bp is changing its reporting structure. It signals a profound shift in how management is trying to increase the company’s valuation.
Bloomberg reported that bp is changing its segment reporting back to upstream and downstream, instead of gas & low carbon energy, oil production & operations and customers & products.
It’s one of the more visible changes new CEO Meg O’Neill is making to reshape the company.
If you’re an oil & gas major, it’s kind of easy to understand why you’d use upstream and downstream segments for reporting business performance.
So why use the more complex arrangement with gas & low carbon energy and the others?
To capture higher multiples on a portion of your earnings.
Back in 2021, one dollar of earnings from a low carbon business was viewed much more favorably than one dollar of earnings from an oil producer.
Not only was there the environmental component, but many investors viewed low carbon businesses as the clear winner in the world’s energy future.
It’s no surprise that today’s segment structure took effect in January 2021.
Knowing valuation equals a multiple times your profit, the previous game was about trying to argue for higher multiples.
But the focus on pulling levers around multiples distracted the company from the core piece of valuation, which is generating as many profit dollars as you reasonably can.
That’s the signal embedded in the structural changes that Bloomberg reported.
bp is no longer trying to get extra credit for low carbon bits and pieces.
Oil & gas is the whole picture now.
