Page 5 - EurOil Week 31

EurOil COMMENTARY EurOil

by two thirds earlier this year. to boast 50 GW of renewable energy capacity by
“We said at the end of the first quarter that 2030, marking a 20-fold increase from the cur-
sticking with the dividend in these conditions rent level.
was a brave decision,” Hargreaves Lansdown “BP has been an international oil company for
analyst Nicholas Hyett commented on the over a century – defined by two core commod-
results. “As disruption has dragged on and long- ities produced by two core businesses,” Looney
term expectations for oil prices shift downwards explained. “Now we are pivoting to become an
the group has bitten the bullet.” integrated energy company – from IOC to IEC.”
“Ultimately the group needs to generate sig- The transformation will in large part be
nificant free cash flow [FCF] if it’s to bring debt achieved with $25bn of divestments by 2025.
back in line,” he said. Through these disposals, BP will scale down
BP’s capex cuts, while prudent and in line its oil and gas business and generate the funds
with similar steps by its rivals, could endanger necessary to build up its clean energy portfolio.
long-term growth. The company has also pledged not to look for
“If new oil wells aren’t brought online even- oil and gas in countries where it is not already
tually, the group’s fields will run dry,” Hyett said. active.
“Longer term, the group needs higher oil prices BP is far from completely calling time on
or lower operating costs, and ideally both, if the oil and gas, however. Fossil fuels will remain
core upstream business is going to get back into a core, albeit smaller part of its business and
profit.” serve as an “engine of value creation”, Looney
told investors. And despite the dividend cut, the
Green pivot CEO said shareholders would continue to be
Looney hosted an unusually long earnings call, rewarded, receiving at least 60% of surplus cash
in order to unveil BP’s new strategy for trans- flow through share buybacks, once net debt is
forming itself from an IOC to an integrated lowered to $35bn.
energy company, as part of its pledge to produce BP also promised its investors 7-9% annual
net zero emissions by 2050. growth in EBITDA between now and 2050.
The strategy is far more drastic than anything The question is whether BP can provide its
put forward by other majors, calling for a 40% shareholders with sufficient reward whilst simul-
reduction in BP’s oil and gas production by 2030 taneously delivering on its green ambitions. The
to around 1.5mn boepd. BP also aims to reduce $25bn of disposals over the next five years will
its refining throughput to 1.2mn barrels per day not make growth generation a simple task, espe-
from 1.7mn bpd. cially if current market conditions persist for
In place of oil and gas, BP will increase annual longer.
investments in clean energy tenfold over the next “Investing in renewables will be expensive
decade, to $5bn. This will include spending on and in the short term will probably be a bit of
renewables, bioenergy, hydrogen and carbon a money pit,” Hyett said. “That could make the
capture and storage (CCS) technology. It wants next few years tough for BP.” ™

Week 31 06•August•2020 www. NEWSBASE .com P5