BP expects to take a $17.5bn hit due to coronavirus writedown
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 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.
Q&A
Job cuts in the travel, aviation, automotive, oil and energy industries
The coronavirus lockdown has virtually halted international travel and tourism, hitting airlines and other travel companies, aerospace and auto manufacturers and oil companies hard.
As these businesses adjust to dramatically reduced revenue projections, job losses are starting to mount alarmingly. More than 40,000 redundancies have already been announced across these sectors, with more than 10,000 likely to be in the UK.
Rolls-Royce
The jet-engine manufacturer has confirmed that 3,000 job cuts, of a planned 9,000 worldwide, will be made in the UK. Rolls-Royce will make the first round of redundancies through a voluntary programme, with about 1,500 posts being lost at its headquarters in Derby, as well as 700 redundancies in Inchinnan, near Glasgow, another 200 at its Barnoldswick site in Lancashire, and 175 in Solihull, Warwickshire.
Bentley
The luxury carmaker intends to shrink its workforce by almost a quarter, slashing 1,000 roles through a voluntary redundancy scheme. The majority of Bentley’s 4,200 workers are based in Crewe in Cheshire.
Aston Martin Lagonda
The Warwickshire-based luxury car manufacturer has also announced 500 redundancies.
BP
The oil company plans to make 10,000 people redundant worldwide, including an estimated 2,000 in the UK, by the end of the year. The BP chief executive, Bernard Looney, said that the majority of people affected would be those in office-based jobs, including at the most senior levels. BP said it would reduce the number of group leaders by a third, and protect the “frontline” of the company, in its operations.
British Airways
The UK flag carrier is holding consultations to make up to 12,000 of its staff redundant, a reduction of one in four jobs at the airline. BA intends to cut roles among its cabin crew, pilots and ground staff, while significantly reducing its operations at Gatwick airport.
Virgin Atlantic
Richard Branson’s airline is to cut more than 3,000 jobs, more than a third of its workforce, and will shut its operations at Gatwick.
EasyJet
The airline has announced plans to cut 4,500 employees, or 30% of its workforce.
Ryanair
The Irish airline intends to slash 3,000 roles and reduce staff pay by up to a fifth.
P&O Ferries
The shipping firm intends to cut more than a quarter of its workforce, a loss of 1,100 jobs. The company, which operates passenger ferries between Dover and Calais, and across the Irish Sea, as well as Hull to Rotterdam and Zeebrugge, will initially offer employees voluntary redundancy.
Centrica
The owner of British Gas is to slash 5,000 jobs, saying it was looking to cut costs by simplifying its business structure. The company is removing three layers of management, with more than half of the job losses falling on leadership roles, including half its 40-strong senior team.
Johnson Matthey
A major supplier of material for catalytic converters in cars, Johnson Matthey announced plans to make 2,500 redundancies worldwide, or 17% of its total workforce. The group said it was the result of the impact of the pandemic, and the uncertain outlook for the car industry.
Heathrow Airport
Voluntary redundancy has been offered to all of its 7,000 direct employees after coronavirus wiped out its passenger traffic.
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 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 non-essential 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.
Read the original article at The Guardian