Impact of pandemic
BP reviews operations, takes £14bn hit on assets
BP is making a strategic switch
BP is reviewing some of its exploration plans and revaluing its assets as it assesses the impact of the coronavirus on the oil price.
It will take a non-cash impairment charge of up to $17.5 billion (£13.9 billion) post-tax in the second quarter as it transitions towards a lower-carbon economy.
The write-down in the value of its assets follows a lowering in its long-term oil and gas price outlook.
The oil giant’s revised long-term price assumptions were now an average of around $55 per barrel for Brent.
Shares in the company fell 5.5% in early trade.
The company said in February that it would reorganise its business to achieve net zero emissions by 2050 or sooner. It announced last week that it would cut 10,000 jobs, nearly 15% of its workforce, to reduce costs.
Today it said it has been reviewing its portfolio and its capital development plans which are informed by the company’s views of the long-term price environment and its balanced investment criteria.
In addition, it sees the coronavirus pandemic having an “enduring impact on the global economy”, with the potential for weaker demand for energy for a sustained period.
BP’s management also has a growing expectation that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to ‘build back better’ so that their economies will be more resilient in the future.
As a result, it has revised its long-term price assumptions, lowering them and extending the period covered to 2050 so that it is now consistent with its ambition horizon.
BP is also reviewing its intent to develop some of its exploration intangible assets.
Bernard Looney: pandemic will have enduring impact
“In February we set out to become a net zero company by 2050 or sooner,” said Bernard Looney, chief executive.
“Since then we have been in action, developing our strategy to become a more diversified, resilient and lower carbon company. As part of that process, we have been reviewing our price assumptions over a longer horizon.
That work has been informed by the COVID-19 pandemic, which increasingly looks as if it will have an enduring economic impact.
“So, we have reset our price outlook to reflect that impact and the likelihood of greater efforts to ‘build back better’ towards a Paris-consistent world. We are also reviewing our development plans.
“All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”