BP plc (LON:BP) is to slash $17.5 billion off the value of its oil and gas assets following grim projections of the impact of the coronavirus pandemic on global oil demand. Just last week, the company announced plans to cut up to 10,000 jobs by the end of the year, representing nearly 15% of its global workforce.
In the wake of a historic few months in the oil industry – with the market trading negatively for the first time on record during April – BP has been forced to cut price forecasts by around 30% and is expecting Brent crude to average at about $55 per barrel until 2050, dropping from $70 this time last year.
Responding to the news, BP has suggested that it may have to leave some of its oil and gas discoveries in the ground if demand does not recover to previous levels. The company also plans to review future projects in light of a “growing expectation” that the coronavirus pandemic will “accelerate the pace of transition to a lower carbon economy and energy system”.
Chief executive Bernard Looney described the company’s plans to “reinvent itself” into a “leaner, faster-moving and lower carbon company” as it emerges from the crisis, citing plans to reduce operating costs – currently standing at $22 billion a year – by $2.5 billion in 2021.
Reflecting on the impact of the coronavirus pandemic in a note to employees, Looney said:
“The oil price has plunged well below the level we need to turn a profit. We are spending much, much more than we make – I am talking millions of dollars, every day. And as a result, our net debt rose by $6 billion in the first quarter”.
Looney concluded that the company is working towards “greater efforts to ‘build back better’ towards a Paris-consistent world”.
BP’s plans to streamline their system are part of a wider scheme to achieve net zero ambitions by 2050. In February, BP chairman Helge Lund commented on the company’s long-term goal:
“Aiming for net zero is not only the right thing for BP, it is the right thing for our shareholders and for society more broadly. As we embark on this ambitious agenda, we will maintain a strong focus on safe, reliable and efficient operations and on delivering the promises we have made to our investors”.
Investor Insight
BP’s share price has risen a modest 2.03% or 6.40 GBX to 322.45, as of BST 11:30 16/06/20. The company’s dividend yield stands at 0.10%.