Oil and gas giant warns of 'enduring impact' of Covid-19 crisis which it expects will accelerate transition to net zero economy
BP expects to slash the value of its oil assets by as much as $17.5bn in the wake of the coronavirus crisis, as the company today predicted the pandemic is likely to have an "enduring impact" on the global economy that will accelerate the transition towards low carbon energy sources.
The oil and gas giant issued a major revision of its long-term price assumptions and capital development plans, in response to the sharp recent fall in oil prices driven by both the Covid-19 lockdown and industry price wars.
BP said it now had a "growing expectation that the aftermath of the pandemic will accelerate the pace of the transition to a lower carbon economy and energy system as countries seek to 'build back better so that their economies will be more resilient in future".
As a result, it said it expected to write down the value of its assets by between $13bn-17.5bn post tax in the second quarter of 2020. It also confirmed it would review whether to develop some of its potential new oilfields in light of its new oil price and demand projections.
Bernard Looney, CEO of BP, said the coronavirus crisis "increasingly looks as if it will have an enduring economic impact" and so the firm had "reset our price outlook to reflect that impact and the likelihood of greater efforts to 'build back better' towards a Paris-consistent world".
"We are also reviewing our development plans," Looney added. "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."
As with much of the global oil and gas sector, BP has been hit hard by the pandemic. Last week it confirmed plans to cut its workforce by around 15 per cent globally - amounting to the loss of around 10,000 jobs - and warned that further cost saving measures may still be necessary. Looney said last week that the oil price had plunged "well below the level we need to turn a profit" in recent months.
With the oil market characterised by considerable oversupply and speculation mounting that demand could be permanently dampened by a shift to home working and a reduced numbers of flights, alongside an acceleration in the development of clean technologies driven by promised green stimulus packages, analysts are predicting that prices could stay relatively low and volatile for the foreseeable future.
Looney recently told the FT that it was possible that the world was now experiencing peak oil demand, and as such fossil fuel companies had to accelerate their transition strategies.
Charlie Kronick, senior climate adviser for Greenpeace UK, said BP's $17.5bn write-down announced today amounted to "a huge dent" in its balance sheet, indicating "it has finally dawned on BP that the climate emergency is going to make oil worth less".
"This is long overdue, and accelerating the switch to renewable energy will be vital not only to the climate but to any oil company hoping to survive in a zero carbon future," said Kronick. "BP must protect its workforce, and offer training to help people move into sustainable jobs in decommissioning and offshore wind."
The news also comes as the FT reported that Denver-based Extraction Oil & Gas's yesterday filed for bankruptcy protection as the collapse in the oil price continued to take a heavy toll on fracking companies.
"After months of liability management and careful analysis of our strategic options, we determined that a voluntary Chapter 11 filing with key creditor support provides the best possible outcome for Extraction," said Extraction chief executive Matt Owens.
The FT cited research from law firm Haynes & Boone, which revealed that the oil price crash had triggered 18 bankruptcies across the shale sector by the end of May.
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