BP has said it expects to reduce its oil and gas production significantly in coming years and to ramp up investment in low-carbon energy amid the challenges posed by the Covid-19 coronavirus and climate change.
The oil giant made a $16.8 billion (£13bn) loss in the second quarter after slashing the valuation of assets in areas such as the North Sea following the plunge in commodity prices triggered by the coronavirus.
The company cut its dividend for the second quarter by 50 per cent in a move which formed part of directors’ plan to reset BP for the future in the face of difficult conditions.
The cut was the first made by BP since 2010, when the disastrous Gulf of Mexico oil spill left the company facing multi-billion dollar costs.
“The board believes setting a dividend at this level takes into account the current uncertainty regarding the economic consequences of the Covid pandemic, supports BP’s balance sheet and also provides the flexibility required to invest into the energy transition at scale,” said the company.
It noted the risk of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.
“BP’s management also has a growing expectation that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to ‘build back better’ so that their economies will be more resilient,” the company said.
In February, chief executive Bernard Looney announced the company aimed to become a net zero company by 2050, and could play an important role in support of the global effort to tackle climate change.
He said yesterday that BP had developed a strategy that provides a comprehensive and coherent approach to turn the net zero ambition into action.
After focusing on oil and gas production for over a century, this will involve BP pivoting to become an integrated energy company focused on delivering solutions for customers.
READ MORE: BP accused of 'greenwashing' on climate change by lawyers
Under the strategy, Mr Looney expects BP’s upstream oil and gas production to reduce by 40 per cent over the next 10 years from 2.6 million barrels of oil equivalent a day (mmboe/d) in 2019 to around 1.5mmboe/d.
Investment in low carbon energy is expected to increase ten-fold over the same period, from around $500 million to around $5 billion a year. The company said it will focus on building scale in renewables and bioenergy and seeking early positions in hydrogen and carbon capture usage and storage.
It did not provide details of how the strategy change will impact on different geographic areas.
The North Sea oil and gas operation is likely to have to compete increasingly hard for investment with other parts of BP’s business.
READ MORE: BP strikes $5bn deal to sell petrochemicals operation to Grangemouth refinery owner
The company will high-grade its exploration and production portfolio resulting in significantly lower and more competitive production.It expects to raise $25bn from divestments over the next five years.
BP said in June that it expects to shed around 10,000 jobs globally under plans to cut costs, with a focus on office-based roles. The cuts are expected to reduced total employee numbers by around 15%.
BP employs around 1,150 people in its North Sea business.
The company sold a range of assets in the area and shed hundreds of jobs in response to the sharp fall in the oil price from 2014 to 2016.
In January BP agreed to sell stakes in the Andrew and Shearwater assets to Premier Oil in a $625m deal. Following the subsequent plunge in oil and gas prices, it accepted significant changes to the terms of the deal.
READ MORE: Glasgow-born oil executive to take charge of BP's North Sea business
Glasgow-born Emeka Emembolu succeeded Ariel Flores as head of the North Sea business in July.
BP is confident that it will be able to generate enough cash from its reshaped business to be able to invest in growth and deliver attractive returns to shareholders.
The expectation is the quarterly dividend will remain fixed at 5.25 cents per share, compared with 10.5 cents in the first quarter.
Subject to reducing net debt to $35bn (from $40.9bn) and maintaining a strong credit rating, BP expects to return at least 60% of surplus cash flow to shareholders via share buybacks.
The company made a $6.7bn underlying loss in the second quarter, compared with $2.8bn profit in the same period last year.
BP shares closed up 18.2p, 6.5%, at 299.25p.
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