BP halves dividend, sets out greener strategy

BP made a record loss in the second quarter, resulting from pre-announced impairments and exploration write-offs triggered by changes to its long-term oil and gas price assumptions. The company has also halved its quarterly dividend, the first cut to shareholder payments in 10 years, and has announced more detailed plans to reduce emissions and boost lower-carbon investment over the next decade.

Asset impairments and exploration write-offs wiped a total of over $17bn off BP's bottom line in the second quarter, pushing the firm to a $17.7bn loss, excluding inventory effects, compared with a profit of $1.8bn a year earlier. These non-cash charges and write-offs were compounded by lower oil and gas prices, a drop in production and "the weakest industry refining environment in over 15 years", partly offset by "an exceptionally strong contribution" from trading.

BP's upstream oil and gas output — excluding its 19.75pc stake in Russia's state-controlled Rosneft — fell by 4pc on the year to 2.53mn b/d of oil equivalent (boe/d) in April-June, driven by asset sales and Opec+ cuts. The company expects production to be lower still in the third quarter after it completed the sale of its upstream assets in Alaska at the end of June. The firm said it does not expect the Covid-19 pandemic "to result in upstream oil and gas outages" but said the health crisis has impacted development work on a number of major projects, including Mad Dog 2 in the US Gulf of Mexico.

In the downstream, BP said the pandemic resulted in an unprecedented fall in demand for oil products during the second quarter, which left the firm's refinery utilisation "more than 10pc below normal levels at around 80pc". The company's refinery runs averaged 1.49mn b/d in April-June, down from 1.6mn b/d a year earlier. The refining environment has since improved sightly, with BP's utilisation rate above 80pc last month. "Retail fuel demand recovered in July to 10-15pc lower than a year earlier, however aviation fuel demand continued to be over 70pc lower," BP said. "Looking to the third quarter of 2020, we expect higher product demand, albeit still significantly below last year's levels. We also expect significant continued pressure on industry refining margins into the third quarter."

BP responded to the challenging operating conditions during the quarter by announcing plans to cut 10,000 jobs, by agreeing to sell its petrochemical business to UK firm Ineos for $5bn, and by issuing almost $12bn of hybrid bonds. The bonds, which are accounted for as equity rather than debt, helped reduce BP's net debt gearing to 37.7pc at the end of June from 40.1pc three months earlier. The company has taken a further step towards boosting liquidity and protecting its balance sheet today, by announcing that its quarterly dividend is being halved to 5.25¢/share. This is BP's first dividend cut since 2010.

The company said it is on track to meet its $12bn organic capital expenditure (capex) target for 2020. The firm also gave much more detail on its longer-term investment strategy. It said it plans a "10-fold increase" in low-carbon investment to around $5bn/yr by 2030. It expects its oil and gas production to fall by 40pc, or at least 1mn boe/d, by that time "through active portfolio management". It also plans "no exploration in new countries".

Chief executive Bernard Looney said that by the end of the decade, BP will "probably be spending roughly 50pc of our investment in oil and gas and roughly 50pc of our investment - 40-50pc - in non-oil and gas".

To deliver on its "net zero ambition", BP said it is targeting a 30-35pc fall in emissions from its operations by 2030. Emissions "associated with carbon in upstream oil and gas production" are expected to be 35-40pc lower, while carbon intensity of products BP sells to customers will fall by more than 15pc in the coming decade.

By Konstantin Rozhnov