BP Plc slashed its dividend for the first time in a decade and set out new targets to accelerate its shift to greener energy after the coronavirus pandemic upended the oil business.
The u-turn in its dividend policy was seen as all but inevitable after European peer Royal Dutch Shell Plc slashed its own payout in April. While Big Oil’s generous dividends have long been its main attraction to investors, the unprecedented market turmoil wrought by the virus has forced companies to take decisions unthinkable before this year.
BP paired the unpalatable news with more details for investors of its net-zero strategy — bringing forward announcements expected in September. It’s targeting a radical 40% decline in hydrocarbon production and a 10-fold increase in low-carbon investment by 2030. It won’t explore for oil in any new countries.
BP shares surged as much as 6.7% at the open on Tuesday, trading up 5.5% at 296.45 pence as of 8:18 a.m. London time.
Chief Executive Officer Bernard Looney is taking the opportunity presented by the virus to speed up the changes he needs to make to fulfill his vision of a low-carbon future. But the company went into the crisis with high debt and hefty payouts — it even increased the dividend for the fourth quarter — meaning more pain now.
What Bloomberg Intelligence Says
“BP has tacitly confirmed that the era of big oil’s business model with big returns, expansionism, and growth at all costs is now over. Long-term, it now faces lower returns, lower-carbon and higher risk as the energy transition bears down.”
Will Hares, global energy analyst
The company reported an adjusted net loss of $6.68 billion for the second quarter, following a $2.81 billion profit a year earlier. It was a narrower loss than expected as BP said its trading division performed strongly. It cut its dividend to 5.25 cents a share.
“It’s very simple,” Looney said about the 50% dividend cut. “The change is rooted in strategy, deeply rooted in strategy, and amplified by Covid.”
See also: Oil Crisis Presents BP’s New CEO With a Chance to Change
- BP’s progressive dividend policy is scrapped. The company said it will return at least 60% of surplus cash as share buybacks
- It’s targeting a 30%-35% decline in emissions from its operations and a 35%-40% cut in carbon output from oil and gas production by 2030
- Over the same time, BP sees refining throughput falling to about 1.2 million barrels a day from 1.7 million a day in 2019
- Investment in low-carbon energy will increase to around $5 billion a year from about $500 million
- Renewable power capacity will rise to around 50 gigawatts from 2.5 gigawatts last year, while electric vehicle charging points will jump to more than 70,000 from 7,500
BP had raised its fourth-quarter dividend to 10.5 cents a share, in the final set of results for outgoing CEO Bob Dudley. But as the coronavirus spread across the world, destroying demand and hammering oil prices, the $8 billion annual payout had looked increasingly shaky.
Virtually every part of BP’s business, from its forecourts to its oil and gas production, was hit by the pandemic’s devastating impact on fuel consumption. But there was one bright spot last quarter: oil trading delivered an “exceptionally strong result,” BP said.
The oil major’s sprawling trading unit capitalized on the period’s volatility and in particular made money from so-called contango plays. That trade involves putting cheap oil into storage and simultaneously selling it at higher prices on the forward market. Total SE, Shell and Equinor ASA all reaped the benefits of contango, with trading gains saving them from a quarterly loss.
American counterparts Exxon Mobil Corp. and Chevron Corp., which have a more timid approach to trading, posted their worst set of quarterly results of the modern era.
— With assistance by Christopher Sell, and Rakteem Katakey
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