June 15, 2020 Read More →

BP to write down oil and gas assets, expects quicker ‘transition to a lower carbon economy’

Bloomberg:

BP Plc will make the biggest writedown on the value of its business since the Deepwater Horizon disaster a decade ago, as the coronavirus pandemic hurts long-term oil demand and accelerates the shift to cleaner energy.

In a dramatic revision that prompted questions about the affordability of its dividend, the British giant cut its estimates for oil and gas prices in the coming decades between 20% and 30%. It also expects the cost of carbon emissions to be more than twice as high as before.

Under its new Chief Executive Officer Bernard Looney, BP has been quicker than many of its peers to plan for a low-carbon world. Yet moves toward a more sustainable future are bringing financial pain today, and investors are asking fundamental questions about the value of oil majors.

BP is reviewing its projects against those new price assumptions, which could result in some oil discoveries being left in the ground. The risk of so-called stranded assets is just one of many challenges the industry faces as trends in energy consumption shift and policymakers pursue green targets.

The company will take non-cash impairment charges and write-offs in the second quarter, estimated to be in a range of $13 billion to $17.5 billion post-tax. That could increase gearing — the ratio of net debt to equity — toward 50%, by far the highest in the industry, said RBC analyst Biraj Borkhataria.

“BP now sees the prospect of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period,” the company said in a statement on Monday. “The aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy.”

[Laura Hurst and Amanda Jordan]

More: BP writes off billions as Covid redraws rules of oil demand

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