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    BP Warns of Divestment Charges, Output Cuts


The company is fast-tracking its divestment programme, with $10bn of assets set to be dropped by the end of the year.

by: Joseph Murphy

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BP Warns of Divestment Charges, Output Cuts

BP has warned it will book $2-3bn in charges in its third-quarter results in connection with planned divestments, according to a company stock exchange filing on October 11.

The UK major announced it was fast-tracking its divestment programme, with plans to offload $10bn in assets by the end of this year. The company said last year it would divest this amount in total over this year and next, following its $10.25bn takeover of the US onshore assets of Anglo-Australian petroleum and mining concern BHP.

BP reported plans to transfer its Alaskan upstream and midstream operations to Houston-based Hilcorp in August for $5.6bn, but the deal still needs regulatory approval. BP has also agreed on the sale of four packages of legacy gas assets from its US Lower 48 business.

The company said the $10bn in sales by the end of this year amounted to “the majority” of its divestment plan up to the end of 2020, indicating the plan's scope had been expanded.

“As a result of the agreed divestments, BP expects to take a non-cash, non-operating, after-tax charge of $2bn to $3bn in third quarter 2019 results,” it said. “BP will also continue to review asset valuations as divestments in the US Lower 48 progress over the fourth quarter 2019.”

The company anticipates gearing – the ratio of its debt to the value of its ordinary shares – to remain at the top end of the 20-30% target range for the rest of this year as a result of the impairments. But gearing should return to the middle of the range through 2020, and net debt levels should also fall, it said.

BP also noted that production would be 100,000 barrels of oil equivalent/day lower in the third quarter owing to a 14-day shutdown of facilities in the Gulf of Mexico as a result of Hurricane Barry, as well as turnarounds in other regions. A higher proportion of output in higher tax regions will also result in an underlying effective tax rate of 50% for the three months, “significantly higher than in the second quarter,” it said. But BP’s full-year tax guidance of around 40% remains the same.

BP recently announced that its CEO Bob Dudley would step down early next year after a decade-long tenure. He will be replaced by Bernard Looney, BP's current head of upstream.