BP takes $17.5B hit as pandemic accelerates emissions cuts

Marco Green
June 15, 2020

BP will take impairment charges and write-offs in the second quarter estimated at as much as US$17.5 billion, the United Kingdom oil major said Monday.

British energy giant BP said today that it will take a hit of up to US$17.5 billion (RM74.9 billion) in the second quarter as "sustained" coronavirus fallout ravages global oil demand.

"We have reset our price outlook to reflect that impact and the likelihood of greater efforts to "build back better", the company's chief executive Bernard Looney said.

"We are also reviewing our development plans, " Looney said.

BP said the actions would mean impairment charges and write-offs in the second quarter of between $13 billion to $17.5 billion after tax.

The coronavirus pandemic delivered a historic blow to the oil and gas industry as lockdowns aimed at controlling the disease brought worldwide travel to a halt.

Investors have increased pressure on oil companies to lower carbon emissions to net zero by the end of the century. The benchmark United States crude oil price turned negative for the first time ever in May, though it has since recovered to about $35 a barrel as of Monday morning.

The company, fresh from outlining plans to axe nearly 10,000 jobs on Covid-19 fallout, said in a statement that it will suffer a negative impact of between US$13 billion and US$17.5 billion in non-cash impairments and write-offs.

"This is the energy transition happening, " said David Elmes, an energy expert at Warwick Business School.

BP also cut its long-term oil price forecast after the deadly virus outbreak slammed the brakes on the global economy and hurt oil prices this year.

Other companies are looking at doing the same - if they have the time and money to change, Elmes said. He cited the example of the Danish company Orsted, a one-time oil company that is now an offshore wind company. "But low prices mean many are struggling".

BP revised its long-term assumptions for Brent crude down to $55 per barrel and for Henry Hub gas (from 2021-2050) to $2.90 per million British Thermal Units.

Brent crude prices dropped from highs of nearly $69 per barrel in January to $19.33 as demand buckled due to movement restrictions put in place to stop the spread of Covid-19 and an unravelling of an agreement to cut production. That increases the likelihood of a dividend cut on August 4 when BP releases results for the period, Redburn analyst Stuart Joyner said in a note. "Having seen its sector peer Royal Dutch Shell bite the bullet and cut its dividend a few weeks ago, it would appear that BP is likely to have to follow suit, if it wants to reduce its already high debt levels and shore up its balance sheet for the new challenges ahead".

Other reports by Click Lancashire

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