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  "documentTitle": "BP plc (BP)",
  "authorId": "23_Bluebell_Capital",
  "authorName": "Giuseppe Bivona and Marco Taricco",
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  "presentationDate": "2023-10-04 00:00:00",
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  "notes": "The slide uses a numbered list to detail specific 'red flags' regarding BP's IRR targets versus WACC.",
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      "text": "We consider BP's decision to invest in this field to be a strategic mistake, driven by irrational considerations or PR, and we see the following red flags which indicate that returns on capital have been ignored.",
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      "text": "(i) BP has only communicated an absolute IRR target (6-8%) on its investment in Renewables & Power and not a spread return vs. its WACC, as is customary for large scale renewable power producers. When risk free rates or the cost of capital increase significantly, not changing the IRR target range is likely to lead to projects achieving returns below WACC, and hence risking the destruction of shareholder value.",
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      "text": "(iii) BP's targeted return in Renewables and Power is well below peers like RWE (plus 100 bps to plus 300 bps above WACC), Orsted (plus 150 bps to plus 300 bps above WACC) and EDPR (plus 200bps above WACC).",
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      "text": "(ii) BP target of 6-8% return its investment in Renewables & Power implies returns between minus 100 bps and plus 100 bps against its WACC, considering BP's WACC at 7.0%: we find it incredible that BP is consciously planning to invest in project which could return WACC minus 100 bps, which appears as a decision deliberately intended to destroy shareholder value.",
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      "text": "IRR: 6-8%",
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      "text": "These figures are dwarfed by the 15-20% IRR in its core business of hydrocarbon production (at $60/bbl). It is staggering to see BP's intention to deploy more than 1/3 of its capex to such low carbon and/or low returns projects.",
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      "text": "It is hard to understand why BP decided to deploy capital in Renewables & Power in the first place, given it expects lower returns than in its core activity and given it has no competitive advantage. We consider BP's decision to invest in this field to be a strategic mistake, driven by irrational considerations or PR, and we see the following red flags which indicate that returns on capital have been ignored, in the face of the utterly unqualified desire to grow in this new field:",
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      "kind": "source-note",
      "text": "15 Source: BP FY22 results\n16 In its 2022 annual report BP discloses a WACC of 7% when testing assets for impairments.\n17 Source: RWE 2021 CMD, Orsted 2023 CMD, EDPR 2023 CMD",
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