BP Slumps into Red in Q2 on Upstream Losses
BP suffered an underlying replacement cost (RC) loss of $6.7bn in the second quarter, owing to low prices, weak demand and significant write-downs, the UK major reported on August 4, also announcing it would halve its dividends.
The result compares with an underlying RC profit of $791mn in the previous three months and $2.81bn in the second quarter of 2019. The reversal was driven by a $8.49bn pre-tax underlying RC loss at BP's upstream business, versus a $3.41bn income a year earlier.
BP reported a net loss of $16.8bn for the second quarter, in stark contrast to a $1.8bn profit a year before. This included $10.9bn in net post-tax charges for non-operating items, including $9.2bn in impairments mostly relating to BP's revised forecasts for oil and gas prices over the next three decades, as well as $1.7bn in exploration write-offs.
"These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent BP," CEO Bernard Looney said. "In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact."
He said, though, that BP's "performance remained resilient, with good cash flow and – most importantly – safe and reliable operations."
BP's averaged realised liquids price plunged 64% year on year to $22.8/b in the second quarter, whereas its gas sold for 24% less at $2.53/'000 ft3. Production averaged 2.53mn barrels of oil equivalent/day in the three months, down 3.8% year on year. Liquids output stood at 1.37mn b/d, up 5%, but gas production fell 12% to 6.725mn ft3/d.
Overall production is expected to fall further in the third quarter, BP said, due to the sale of its Alaskan business to Hilcorp, the loss of entitlement volumes from technical services contracts and seasonal maintenance activities.
BP's downstream performance was much stronger in the period, with the segment posting a 3% increase in pre-tax underlying RC profit to $1.41bn.
Operating cash flow, excluding Gulf of Mexico oil spill payments, totalled $4.83bn in the period, versus $8.23bn a year earlier. Net debt was also $10.5bn lower at the end of June than three months earlier, at $40.9bn.
BP did not announce any further cuts to 2020 capital expenditure beyond the 25% reduction it announced in April to $12bn. It has halved its dividend for the quarter to $0.0525/share, however, following similar moves by Shell, Equinor and others.
Net zero ambition
BP also published on August 4 its long-awaited strategy for reaching net zero emissions by 2050. The strategy envisages the major transitioning from an oil and gas company to an integrated energy company, a move that will see its oil and gas production decline by 40% over the next decade.
BP's production is expected to come to around 1.5mn barrels of oil equivalent/day by 2030, from around 2.6mn boe/d lastyear, while its refining throughput is seen dropping to 1.2mn b/d from 1.7mn b/d. It will achieve this decline through disposals, and will not explore for oil and gas in countries where it does not already have upstream activities.
At the same time, BP is looking to scale up investments in low-carbon projects such as renewables and bioenergy tenfold to $5bn annually by 2030, while reducing emissions from its operations by 30-35% by that point. It is targeting a 35-40% cut in upstream emissions.
"BP has been an international oil company for over a century – defined by two core commodities produced by two core businesses," Looney said in a statement. "Now we are pivoting to become an integrated energy company – from IOC to IEC."
At the same time, BP said it would maintain its focus on shareholder value, returning at least 60% of surplus cash flow to shareholders through share buybacks once it has managed to lower its net debt to $35bn. It also aims to boost core earnings (Ebitda) by 7-9% annually between now and 2025.