BP takes $17.5B hit amid pandemic

Coronavirus speeds up emissions cuts, shift away from fossil fuels.

BP says it will cut the value of its oil and gas assets by as much as $17.5 billion and review plans for some oil wells as the COVID-19 pandemic reduces demand for oil and gas and forces major energy companies to speed up the shift away from fossil fuels.

The London-based company said Monday it was taking the steps because demand for energy is likely to remain weaker for “a sustained period” as countries respond to the shock of the pandemic by accelerating efforts to reduce carbon emissions.

As a result, BP cut its longterm forecast for Brent crude, a benchmark for world oil prices, to about $55 a barrel from $70. Brent oil traded for about $39 a barrel on Monday.

“All that will result in a significant charge in our upcoming results,” Chief Executive Bernard Looney said in a statement. “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.”

BP in February pledged to become a “net-zero” company by 2050, meaning it will eliminate or offset all carbon emissions from its operations and products by that date. But oil companies are being forced to move faster than planned because the pandemic is already squeezing the profits they are counting on to finance the transition.

BP said the actions announced Monday would result in after-tax impairment charges and writeoffs of between $13 billion and $17.5 billion when the company reports second-quarter earnings.

The structural shift in the energy industry combined with unusually high oil and gas supplies to create a perfect storm on global energy markets at the start of the coronavirus outbreak. With storage facilities filling up and demand plunging as economies were locked down, the U.S. price of oil went below zero in April for the first time ever. Only a week ago BP announced it would cut 10,000 jobs to reduce costs and adapt to lower prices and plummeting global demand.

Monday’s announcement makes clear that the pandemic has hastened the move away from fossil fuels.

“This is the energy transition happening,” said David Elmes, an energy expert at Warwick Business School in England. “The question is who can do it and how fast they can do it.”

Other companies are looking at doing the same - if they have the time and money to change, Elmes said.