BP may abandon oil assets in rapid green shift
BP has signalled a gloomy outlook for the global energy industry, taking a writedown of as much as $US17.5bn.
BP has signalled a gloomy outlook for the global energy industry, taking a writedown of as much as $US17.5bn ($25.7bn) and warning it may leave oil and gas in the ground amid a rapid transition away from fossil fuels.
It expects the COVID-19 pandemic will have a long-term economic impact, as slowing demand and falling prices accelerate a shift towards a lower carbon economy, with BP cutting its oil price assumptions by 30 per cent out to 2050.
The oil major will also review whether to develop some of its exploration prospects, raising the prospect of valuable oil and gas deposits being left untouched as it switches focus to more climate-friendly supply sources.
The downbeat announcement will stoke concerns among some investors that fossil fuel producers face the risk of stranded assets as pressure grows to respond more quickly to global warming.
Big oil and gas players including BP and Shell plan to be net zero carbon emissions by 2050, with a bigger focus on renewables and offsetting greenhouse emissions through tapping new technologies.
The largest writedown by an oil major in years is also linked to BP’s newly appointed chief executive’s plans to reshape the company. Bernard Looney, who was promoted in February, wants to prepare for a low-carbon future by making BP leaner and nimbler.
Last week, BP said it was cutting nearly 10,000 jobs, or 14 per cent of its workforce, as it seeks to bolster its finances.
BP’s revised long-term energy price assumptions included Brent oil being pegged at $US55 a barrel, down from a previous assumption of $US70 a barrel. Benchmark Brent oil traded at around $US37 a barrel on Monday, having almost halved since the start of the year.
While BP was regarded within the industry as holding optimistic views of future oil prices, the big cuts will place pressure on its rivals to consider their own exposure should global oil demand fail to recover in the wake of COVID-19.
Pressures are also growing for big Australian producers to commit to extra measures to combat climate change.
A majority of shareholders backed a resolution on Paris climate targets at Woodside Petroleum’s annual general meeting, underlining growing investor angst that big energy producers are not doing enough to address climate change concerns.
Big proxy advisory firms including ISS have supported an AGM resolution requiring Woodside to disclose interim targets for both direct and indirect emissions and questions over whether new gas projects can meet Paris climate targets.
Woodside chairman Richard Goyder earlier said its largest shareholders had raised climate change as a leading issue for the gas producer amid oil market and COVID-19 ructions, with the producer touting that its gas projects would replace higher-polluting fuels like coal.
BP said on Monday that it expected a charge of between $US13bn and $US17.5bn in its second-quarter results, from a combination of pretax impairment charges against property, plant and equipment, and write-offs on asset values.
The company already has one of the highest levels of debt in relation to its size among its peers. Its gearing — the ratio of net debt to the total of net debt and equity — rose to 40 per cent including leases in the three months to March, from 35 per cent in the previous quarter and above its targeted 20-30 per cent. Analysts were already anticipating it would rise further and this will be exacerbated by the writedown.
“BP’s balance sheet was stretched even without this impairment, and is likely to look even more stretched following it,” said Biraj Borkhataria, co-head of European energy research at RBC Capital Markets.
Additional reporting: WSJ
