BP has announced plans to divest its US biogas business, Archaea Energy, marking the latest step in the oil major's broader retreat from renewable energy investments and its renewed focus on core oil and gas operations. The reversal scales back what had been one of the energy sector's most ambitious green pivots: in 2020, under then-CEO Bernard Looney, BP pledged to reach net-zero emissions by 2050 and sharply reduce its reliance on fossil fuels.

The decision comes just days after BP confirmed its exit from the North Sea, a move that leaves the British energy giant without any petrochemical production in its home market for the first time in decades. The company has also sold its Gelsenkirchen refinery in Germany and its retail business in Austria.

BP acquired Archaea for $4.1 billion in 2022, a deal that gave the company a major foothold in the fast-growing US renewable natural gas (RNG) market, where landfill gas is captured and processed into pipeline-quality biomethane. However, the business has since experienced financial underperformance and slower-than-expected growth, prompting the FTSE 100 company to reassess the asset's value.

The divestment forms part of a wider restructuring strategy led by BP's new chief executive, Meg O'Neill, who has signaled an aggressive overhaul of the company's portfolio. O'Neill previously announced plans to reorganize the group into two divisions — upstream and downstream — with a focus on profitable assets. BP is not alone in pulling back from renewables: rival Shell has also trimmed its clean-energy investments and weakened emissions targets, reflecting a broader shift by European oil majors toward higher-return fossil fuel projects.

"We are not making the most of our potential," O'Neill said. "Our performance over the past few years has not met our own expectations, let alone those of our shareholders. We have not delivered consistently; we have written off too much value; and our costs and liabilities are not resilient enough in a low price environment."

O'Neill emphasized that the company must simplify its portfolio "based on value, not sentiment, nor history" and concentrate on assets that "deliver competitive returns and long-term value."

She added: "We need to take a clear look at ourselves: assessing what needs to change, stopping what holds us back and building strength where it matters. We have to get fit to grow."

Middle East Conflict Boosts Second-Quarter Profits

The restructuring announcement coincided with a sharp rise in second-quarter profits, as BP capitalized on volatile oil prices driven by the ongoing conflict in the Middle East.

BP reported a profit surge to $5.7 billion (£4.2 billion) for the second quarter, a $2.5 billion increase from the prior period and well above analyst expectations of $5.1 billion.

The firm's gas and low carbon energy division reported profits of $1.6 billion, up from $1.1 billion in the previous quarter. Oil production and operations saw profit climb to $3.4 billion, nearly double the $1.7 billion recorded in the prior period.

Mark Crouch, market analyst at eToro, commented: "Having retreated from its previous push into renewables, BP is accelerating asset sales, simplifying the business and directing more capital towards higher-return oil and gas operations. If tensions across the Middle East persist or escalate further, energy prices could remain elevated, providing an additional tailwind for the sector. The key question for investors is whether BP can use this favourable backdrop to create lasting shareholder value long after today's geopolitical uncertainty eventually fades."

Production Guidance and Outlook

BP anticipates third-quarter production to range from 2,100 to 2,250 thousand barrels of oil equivalent per day (mboe/d), compared with 2,201 mboe/d in the second quarter. The company has also lowered its full-year upstream production expectations to a range of 2,180 to 2,270 mboe/d, down from last year's 2,312 mboe/d.

The group attributed its revised outlook to "continued disruption in the Middle East" and the possibility of "weather events in the Gulf of America."

BP also expects income taxes paid in the quarter to be approximately $1 billion higher, which it attributed primarily to "timing effects."

Shares rose 1.2 percent in early trading to 559.1 pence per share. The stock has gained 27.6 percent since the beginning of the year.

Source: City AM