Page 4 - EurOil Week 24

EurOil COMMENTARY EurOil

BP to strike up to $17.5bn from

asset values

BP sees the pandemic having an enduring impact on the global economy

GLOBAL BP has said it will write down $17.5bn from the under BP’s latest price assumptions, cash gen-
value of its assets, after slashing its long-term eration will be less than previously anticipated,”
WHAT: forecasts for oil prices to factor in the corona- he said.
BP will book up to virus-induced economic slowdown and a fast- BP, which recently announced it would cut
$17.5bn in write-downs tracked energy transition. almost 10,000 jobs, or around 15% of its total
in Q2 to reflect its lower The impairments and write-offs will be staff, saw its net debt rise by $6bn in just the first
price assumptions. reflected in BP’s second-quarter results, which quarter.
it is due to publish on August 4. The following “In the longer term, this is about BP’s strategic
WHY: month CEO Bernard Looney, who took the shift away from oil and gas,” Parker said. “While that
The UK major lowered company’s helm last year, will announce a plan will be a multi-decade affair, BP is already getting to
its forecasts in light to “reinvent” BP, reducing its oil and gas focus in grips with the idea that its upstream assets are worth
of weaker long-term favour of renewables. less than it believed as recently as six months ago.
demand. “BP now sees the prospect of the pandemic Indeed, some of them are worth nothing.”
having an enduring impact on the global econ- The expert said the move was “another step in
WHAT NEXT: omy, with the potential for weaker demand for the re-rating of oil and gas, and the journey from
BP is to unveil plans energy for a sustained period,” the UK major big oil to big energy.”
to transform itself into explained. “BP’s management also has a grow- “BP is working through the detail of the
a greener company in ing expectation that the aftermath of the pan- ‘reimagine’ strategy that it unveiled in February,”
September. demic will accelerate the pace of transition to he said. The strategy, due in September, “will
a lower-carbon economy and energy system, provide a much clearer picture of BP’s plans for
as countries seek to ‘build back better’ so that capital allocation and cash flow generation as it
their economies will be more resilient in the makes the transition to net-zero.”
future.” BP’s outlook
Given this adjusted outlook, BP said it had cut As part of its transition, BP wants to shift its
its long-term price assumptions and extended fossil fuel production from oil to gas, which is
them until 2050, by which point it will have anticipated to play a key role in supplying rising
striven to become a net-zero carbon company. electricity demand.
The company now sees oil averaging $55 per bar- BP also published its annual Statistical
rel between 2021 and 2050, with Henry Hub gas Review of World Energy this week, in which it
prices averaging $2.90 per mmBtu. Previously reported that global gas demand grew by 2% or
it had assumed oil would average $70 during 78bn cubic metres last year. This represented
the period. Its new outlook is the lowest among a slowdown from 2018, when consumption
Europe’s top energy companies, according to increased by 5.3%, but the share of gas in pri-
Barclays research. mary energy still expanded to a record 24.2%.
BP also said it would reconsider the devel- The biggest growth in single countries was seen
opment of some very early-stage explora- in the US and China, while Russia and Japan saw
tion projects, as it looks to prioritise capital the biggest declines.
discipline. Highlighting the growing supply glut, pro-
“These actions will lead to non-cash impair- duction outpaced demand by rising 3.4%, or 132
ment charges and write-offs in the second quar- bcm. The US accounted for almost two-thirds
ter, estimated to be in an aggregate range of of this increase, while other key contributors
$13bn to $17.5bn post-tax,” BP said. included Australia and China.
Wood Mackenzie analyst Luke Parker said Oil demand grew by 0.9mn barrels per day,
BP’s write-downs did not come as a big surprise, driven by rising consumption in China and
as the risk had been flagged up in the company’s other emerging economies, which more than
last annual report. offset decline in OECD countries. Output fell by
“While these are non-cash charges, with no 60,000 bpd, as US growth was countered by falls
bearing on cash flows, the implications – near- in OPEC countries.
term and long-term – are very real,” Parker said in Coal demand slid 0.6%, while its share in the
a research note, estimating that a $17.5bn write- energy mix slumped to a 16-year low of 27%, as
down would push BP’s gearing ratio to 45%. rises in China and Indonesia were more than
“Greater urgency to pay down debt will put met by a sharp decline in OECD demand, espe-
further pressure on the dividend. Of course, cially in the US and Germany. ™

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