The British oil and gas major BP has seen its share price drop another 6% today after publishing its full-year results for 2020. The company described it as a ‘brutal’ year thanks to oil prices plummeting as demand for energy dropped significantly over the Covid-19 crisis. It didn’t help the drop-off in demand coincided with prices already being hit by oversupply.
The extent of BP’s record loss was a result of both lower revenues as a result of rock bottom oil prices and write-offs as assets were revalued on the basis of a poor medium-term outlook for the sector. What was already obviously going to be a disaster of a year for BP, and any other oil and gas company, was rounded off by worse-than-forecast fourth quarter results. Analysts had expected underlying profits for the quarter to come in at $370 million. In the end the final figure was just $115 million – a whopping 96% drop on the previous year.
It marks BP’s first annual loss since the huge expenses it faced in the wake of the Gulf of Mexico disaster a decade ago. And 2020’s $18 billion hit dwarves the $4.9 billion loss taken then. In 2019 BP’s profit, based on the “replacement cost” measure standard for the sector, was $3.5 billion.
Impairment charges and write-offs taken in 2020 reflected BP’s downgrading of its long-term average oil price outlook to $50 billion from $75 billion. The company’s analysts expect the Covid-19 pandemic to have a relatively long-lasting impact on demand for fossil fuels, with the transition to a lower-carbon energy mix over future years also accelerating.
BP chief executive Bernard Looney commented the last three months of 2020 had been
“another tough quarter at the end of an incredibly tough year — the most brutal I can remember in almost 30 years in this industry”.
The company predicts a recovery in oil demand this year but warned that lockdown restrictions over the first quarter will again mean a roughly 20% year-on-year drop in demand, compared to an 11% drop for the fourth quarter of 2020. The coronavirus crisis only hit global demand towards the tail-end of the first quarter last year and the last three months of 2020 featured fewer lockdown restrictions than earlier in the year and the current quarter.
Mr Looney continued:
“2021 is not getting any easier just yet. But much better days are ahead. And when the vaccines kick-in and the world pulls out of the pandemic, we will be ready to really take off.”
BP has changed its long-standing policy of progressive dividends in favour of a fixed dividend and share buybacks as a result of recent financial pressures. But it first wants to reduce its net debt levels to $35 billion from its current level of $38.9 billion. A year ago bet debt stoot at $45.4 billion. However, it is expected to increase again over the first half of 2021 as a result of severance payments to the 10,000 staff its workforce is being reduced by, annual payments made in recompense for the Gulf of Mexico spill and payments due on the completion of its Equinor offshore wind power joint venture.
Chief financial officer Murray Auchincloss told investors BP remains
“on track to meet our target of $35 billion between the fourth quarter of 2021 and first quarter of 2022, which will trigger the start of share buybacks”.
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