BP slumps to record loss in 2020 as pandemic bites

BP made a profit in the fourth quarter but still reported a record loss for the whole of 2020 as Covid-related revisions to its oil and gas price assumptions triggered hefty impairments and write-offs in the summer.

Excluding inventory effects, the company made a profit of $825mn in October-December, compared with a loss of $4mn a year earlier. BP said its performance in the quarter was "significantly impacted" by a lower contribution from "marketing in the downstream, with volumes remaining under pressure due to Covid-19". The company also cites "a significantly weaker result in gas marketing and trading, and higher exploration write-offs".

For the whole of 2020, BP swung to a record loss of $18.1bn, from a profit of $3.5bn in 2019. The company took heavy impairments and write-offs in the middle of 2020, stemming from new oil and gas price assumptions resulting from the demand hit from the Covid-19 pandemic and the energy transition.

BP's divestment programme brought in $4.2bn of proceeds in the fourth quarter, including $3.5bn from the sale of most of its petrochemical assets to UK firm Ineos. Divestment proceeds for the full year amounted to $6.6bn.

"BP has now completed or agreed transactions for over half of its target of $25bn in proceeds by 2025," the company said. It expects to cash in $4bn-6bn of asset sales this year.

The divestment proceeds helped the firm reduce its net debt — excluding leases — by $1.4bn during the fourth quarter to $38.9bn by the end of the year. But the company said it expects net debt to increase in the first half of this year before going back down in the second half. BP plans to reach its net debt target of $35bn around the end of this year or early 2022, which will trigger share buybacks.

In terms of investment, BP sees total capital expenditure (capex), including acquisition spending, of about $13bn this year. The firm's organic capex amounted to $12bn in 2020, down from $15.2bn in 2019. The firm said although the pandemic did not cause significant disruption to its ongoing operations, it did have an impact on some major development projects including Mad Dog 2 in the US Gulf of Mexico and the Greater Tortue Ahmeyin LNG project in Mauritania and Senegal.

BP's upstream oil and gas production — excluding its 20pc stake in Russian state-controlled Rosneft — averaged 2.16mn b/d of oil equivalent (boe/d) in the fourth quarter, which was 20pc lower than a year earlier partly because of divestments. For the whole of 2020, output averaged 2.38mn boe/d. BP predicts production this quarter will be slightly higher than in October-December but it expects the ongoing asset sales programme to leave full-year output lower than 2020.

In the downstream, BP's refinery runs averaged 1.63mn b/d in the fourth quarter, compared with 1.85mn b/d a year earlier. "Looking to the first quarter of 2021, we expect industry refining margins and utilization to remain under pressure," the firm said.

By Konstantin Rozhnov