BP halves divi after oil price slump leads to bumper losses

● Oil giant reports $6.7bn loss for Q2 as demand drops ● Plans ten-fold increase in low carbon initiatives

BP has slashed its dividend payout for the first time since the Deepwater Horizon disaster after the company’s profits were squeezed by a drop in the price of oil.

The news came as the major North Sea player also unveiled its plans to transform its business by slashing daily oil and gas production by 40 per cent over the next decade and investing around $5 billion (£3.8bn) in low-carbon projects, a ten-fold increase from today.

The oil giant swung to a $6.7bn underlying replacement cost loss in the second quarter of the year, a massive hit compared with the same time last year when it made a $2.8bn profit, although the figure was better than some analysts had expected.

The average price of oil was around 57 per cent lower at $29.50 for a barrel of Brent crude in the quarter compared with the same three months in 2019.

The falling price was driven by a mix of geopolitics as Saudi Arabia and Russia started a price war at the start of the year, and the pandemic, which pushed down demand for oil.

Chief executive Bernard Looney said: “These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent BP.

“In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact.

“Beneath these, however, our performance remained resilient, with good cash flow and – most importantly – safe and reliable operations.”

Three months ago, amid the doom and gloom of Covid-19, BP surprised many marketwatchers by not cutting its payout to shareholders, as its rival Shell had for the first time since World War II.

Richard Hunter, head of markets at interactive investor, said: “Amid a planned longer-term radical overhaul of the business, BP has finally bitten the dividend bullet.

“The sustained fall in the oil price and demand destruction arising from the pandemic has taken its toll. With oil still down 34 per cent in the year to date, refining margins have reduced to a trickle. Meanwhile, the effects of lockdown on demand were severe, with general travel and aircraft standing idle, exacerbating what was already an oversupplied market.”

Although the dividend has been cut, Hunter said the implied yield remains around 6 per cent, which is “particularly punchy” in the current interest rate environment.

“When set against any number of blue-chips who have decided to defer or cancel their own payments, the yield is particularly attractive.” He added that a new share buyback strategy to return 60 per cent of surplus cash also provides extra flexibility.