13/07/2020 BP expects to take $17.5bn hit due to coronavirus writedown | Business | The Guardian
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BP expects to take $17.5bn hit due to
coronavirus writedown
Jillian Ambrose and Julia Kollewe
Oil company says it may be forced to leave some ofits fossilfuel
discoveries in the ground
Coronavirus latest updates
See all our coronavirus coverage
Tue 16 Jun 2020 01.27 AEST
BP will slash up to $17.5bn (£14bn) from the value of its oil and gas assets,
and may be forced to leave new fossil fuel discoveries in the ground, after
its own forecasts found the Covid-19 pandemic may affect the world’s oil
demand for the next 30 years.
The British oil major told investors it would take the hit, its largest
writedown in a decade, because its oil price forecasts for the next three
13/07/2020 BP expects to take $17.5bn hit due to coronavirus writedown | Business | The Guardian
https://www.theguardian.com/business/2020/jun/15/bp-expects-covid-19-to-have-enduring-impact-on-global-economy 2/7
decades have fallen by almost a third.
The cut to BP’s global oil price forecasts, to an average of $55 a barrel
between 2020 and 2050, could mean the oil company is forced to leave
some oil and gas discoveries in the ground if the projects prove uneconomic
to develop.
Last week, BP announced plans to cut 10,000 jobs worldwide, representing
about 15% of its 70,000 staff, by the end of the year. Employees were told
the job cuts were essential to enable the company to cope with a global
collapse in demand for oil owing to the coronavirus pandemic.
BP said on Monday the company’s management team would review its
plans to develop new projects in light of a “growing expectation” that the
global pandemic would “accelerate the pace of transition to a lower carbon
economy and energy system”.
The unexpected announcement marks the clearest sign yet that the
coronavirus could hasten the global shift towards cleaner energy sources
after triggering a historic slump in demand for fossil fuels to 25-year lows
this year.
BP’s boss, Bernard Looney, said the company had “reset” its oil forecasts to
reflect the lasting impact of the coronavirus outbreak on the global
economy and the likelihood of “greater efforts to ‘build back better’
towards a Paris-consistent world” in the aftermath of the pandemic.
BP expects Brent crude oil to average about $55 a barrel between 2021 and
2050, and $2.90 per million British thermal units for Henry Hub gas, the
benchmark for natural gas. The forecasts are 27% and 31% lower
respectively than the average prices used in its latest annual report. Brent
crude is trading at $38 a barrel.
“We are also reviewing our development plans,
” he said. “All that will result
in a significant charge in our upcoming results, but I am confident that
these difficult decisions – rooted in our net-zero ambition and reaffirmed by
the pandemic – will better enable us to compete through the energy
transition.”
Charlie Kronick, a senior climate adviser for Greenpeace UK, said the oil
price reset was long overdue. “This huge dent in BP’s balance sheet
suggests it has finally dawned on BP that the climate emergency is going to
13/07/2020 BP expects to take $17.5bn hit due to coronavirus writedown | Business | The Guardian
https://www.theguardian.com/business/2020/jun/15/bp-expects-covid-19-to-have-enduring-impact-on-global-economy 3/7
make oil worth less – something that smart investors have been warning for
some time,
” he said.
The reset is likely to accelerate BP’s plans to end its contribution to the
climate crisis by 2050, which BP’s incoming chief executive revealed earlier
this year. Looney is expected to set out detailed plans for BP to reduce its
carbon emissions to net zero in September this year.
The new chief executive, who took the helm of the oil firm in February, told
the Guardian last month that the impact of the coronavirus pandemic had
deepened his commitment to shrinking the oil giant’s carbon footprint to
zero.
He said he was “more convinced than ever” that BP must move towards a
net-zero carbon target for 2050, set out earlier this year, by spending less on
oil and gas and more on low-carbon energy sources.
BP’s shares fell 4% to 310p after the unscheduled update, making it one of
the biggest fallers on the FTSE 100, as equity analysts braced for what could
prove to be BP’s deepest ever quarterly loss.
The oil price reset is expected to result in write-offs of between $13bn and
$17.5bn in BP’s financial results for the second quarter due later this month,
which could surpass the $17bn loss reported in the wake of the Deepwater
Horizon disaster in 2010.
Countries have eased their Covid-19 lockdowns in recent weeks, with nonessential shops opening in England on Monday while in France indoor cafes
and restaurants are reopening. But the global economic recovery is
expected to be slow as thousands of people have lost their jobs or have seen
their wages cut under job retention schemes.
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