BP Reports $17.7 Billion Loss, Cuts Dividend--2nd Update
By Sarah McFarlane
LONDON -- BP PLC cut its dividend for the first time in a decade
and outlined plans to pivot away from oil and gas and invest more
in low carbon energy -- marking one of the most dramatic
energy-transition plans among its oil major peers at a time of deep
crisis for the industry.
The British energy giant aims to increase its low-carbon
investments to $5 billion a year by 2030, from around $500 million,
at the same time as seeing its oil and gas production fall by 40%
from 2019 levels. The plans include ramping up renewable energy
capacity from sources such as wind and solar to 50 gigawatts, from
2.5 GW in 2019.
BP's decision Tuesday caps one of the worst quarters ever for
the world's biggest oil companies, all of which reported losses and
warned of more pain to come as the coronavirus pandemic continues
to sap global demand for fossil fuels.
The company's decision to halve its dividend follows a similar
move by Royal Dutch Shell PLC, which said in April it would reduce
its dividend by two-thirds. The other major oil companies -- Exxon
Mobil Corp., Chevron Corp. and Total SA -- retained their dividends
but have taken on more debt.
The dividend cuts upend what has long been a fundamental bargain
between major oil companies and their investors, centered on
reliable and large payouts. BP said that the decision to cut the
dividend prompted the company to communicate its energy transition
plans ahead of its original time frame of September.
"Particularly as we were making the announcement around the
dividend, we wanted to give the story all at once, so that people
can put all of the decisions in context," said Bernard Looney,
chief executive of BP.
Resetting its dividend at a lower level enables BP to invest in
the opportunities arising from the energy transition, the company
said. The oil major also plans to sell $25 billion of assets by
2025. The recent sales of BP's Alaska business and chemicals unit
contribute to the target, the company said.
The poor results and dividend cuts come at a time when oil
companies were already under pressure from investors to articulate
a vision for their future. Demand for fossil fuels is expected to
plateau or shrink in the coming years as the world transitions to
lower-carbon energy. Companies, including BP and Shell, have
questioned whether oil demand will fully recover to pre-pandemic
levels, or whether coronavirus could accelerate the transition to
This isn't the first time BP has tried to tilt away from oil and
gas. More than a decade ago the company rebranded as "Beyond
Petroleum" and committed to generating more renewable energy, but
eventually abandoned the effort.
BP said that global oil demand is expected to be around eight to
nine million barrels a day lower than in 2019 and that there was
potential for weaker energy demand over a sustained period.
The company reported a replacement cost loss -- a metric similar
to the net income figure that U.S. oil companies report -- of $17.7
billion for the three months ended June 30, from a profit of $1.8
billion for the year-earlier period. It reduced its quarterly
dividend to 5.25 cents a share from 10.5 cents. The last time BP
cut its dividend was in 2010 after the Deepwater Horizon oil spill
in the Gulf of Mexico.
BP said its new dividend policy entailed a fixed amount, and it
will return at least 60% of surplus cash as share buybacks once the
company's balance sheet has been strengthened.
"We believe that what we are setting out today offers a
compelling and attractive long-term proposition for all investors
-- a reset and resilient dividend with a commitment to share
buybacks; profitable growth; and the opportunity to invest in the
energy transition," said Mr. Looney.
BP's gearing -- the ratio of net debt to the total of net debt
and equity -- fell to just below 38% including leases in the three
months to June 30, from around 40% in the previous quarter. It
remained above its targeted 20% to 30%.
BP's shares traded up 6.8% on Tuesday.
Write to Sarah McFarlane at firstname.lastname@example.org
(END) Dow Jones Newswires
August 04, 2020 08:43 ET (12:43 GMT)
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