BP profit tumbles by two-thirds as oil demand dries up
BP’s underlying profit fell by two-thirds in the first quarter as the coronavirus crisis destroyed global demand for oil.
The oil giant’s underlying cost replacement profit, its preferred reporting metric, dropped from $2.4bn (£1.9bn) to $0.8bn year-on-year.
Shares in BP fell a little over one per cent this morning.
The figures
For the quarter, the FTSE blue-chip made a loss attributable to shareholders of $4.4bn, $3.7bn of which came from inventory losses due to the plunge in oil prices in March.
Net debt rose $6bn in the period to reach $51.4bn, resulting in a gearing ratio of 36.2 per cent, above BP’s target of 20 to 30 per cent.
The firm said that it had about $32bn in available liquidity after taking measures to bolster its finances.
BP also announced that it would pay out a dividend of 10.5 cents for the quarter despite the unprecedented crisis.
Across the year, BP will cut its production by 70,000 barrels per day due to the demand decline.
Why it’s interesting
The coronavirus crisis has led to an unprecedented slump in global demand for oil and gas due to a shutdown in economic activity and stringent travel bans around the world.
Earlier this month the International Energy Agency forecast that demand for oil would fall nearly 30 per cent in April and May.
The slump has hammered oil prices, forcing worldwide standard Brent crude down to levels last seen at the turn of the millenium.
BP said that although the Opec cuts scheduled to begin this month would “reduce the imbalance”, they are “unlikely to prevent material supply shut ins by oil producers in the near-term, some of which may be difficult to reverse”.
It added that there would be an “exceptional level of uncertainty” in the market in the short term as lockdowns continued around the world, with upstream production forecast to drop in the second quarter.
Despite the challenges, BP confirmed it would make its annual $1.2bn payment to the Gulf of Mexico oil spill settlement next quarter.
The crisis has already impacted the firm’s divestment programme, with BP announcing changes to the terms of its deal to sell its Alaskan assets to Hilcorp yesterday.
Chief executive Bernard Looney said that the firm was aiming to reduce costs by $2.5bn by the end of next year in a bid to drive the breakeven cost per barrel of oil to $35.
According to the Economist Intelligence Unit, price per barrel is expected to average $36 this year.
In part, this will be achieved by previously announced plans to cut capital spending by 25 per cent to $12bn.
Of this, BP’s planned $500m of spending on renewable energy sources will go ahead as scheduled.
CMC Markets chief analyst Michael Hewson said BP was particularly exposed due to its purchase of BHP’s North American shale assets in 2018.
What BP said
Chief executive Bernard Looney, who only took over the top job in February, said:
“This extraordinary time for the world demands extraordinary responses. And thankfully we are seeing that just about everywhere we look around the world.
“Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward.
“We are focusing our efforts on protecting our people, supporting our communities and strengthening our finances.
I am incredibly proud of the work that our people are doing in all three areas, particularly our colleagues in operations – from rigs to retail and
everywhere in between – who are continuing to deliver energy and provide goods in the most difficult of circumstances”.