BP to Book up to $17.5bn in Charges on Weaker Price Outlook
BP warned on June 15 it will take up to $17.5bn in impairments and write-offs in the second quarter, after lowering its long-term price assumptions to take into account weaker demand for energy as a result of the Covid-19 crisis, and an accelerated transition towards lower carbon energy.
The UK major is due to report its second-quarter results on August 4 and the following month, CEO Bernard Looney plans to unveil a strategy to "reinvent" BP, reducing its focus on oil and gas in favour of a larger renewables portfolio.
"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. "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."
In light of this outlook, BP said it had lowered its long-term price assumptions and extended them up until 2050, by which point the major aims to have become a net-zero carbon company. BP now assumes an average oil price of $55/b between 2021 and 2050, and an average Henry Hub gas price of $2.90/mn Btu. Price assumptions for the next 10 years are down 30% for oil and 16% for gas from the previous guidance.
As part of its focus on capital discipline, BP is also reconsidering plans to develop some of its very early-stage exploration assets.
"These actions will lead to non-cash impairment charges and write-offs in the second quarter, estimated to be in an aggregate range of $13bn to $17.5bn post-tax," BP said.
Spain's Repsol similarly booked a $5.3bn impairment charge last year to take into account lower oil and gas prices as a result of the energy transition.
The impairments will further weaken BP's financial position. The company warned earlier this month it would cut close to 10,000 jobs, or around 15% of its total workforce, to stem "millions of dollars" of daily losses.