BP sees up to $17.7bn in Q2 writeoffs as Covid hits demand

BP said it was writing off up to $17.5bn after it cut long term oil and gas price forecasts based on a long impact of Covid-19 and sustained weaker demand.

The oil giant's revised long-term price assumptions were now an average of around $55 per barrel for Brent and $2.90 per million British thermal units for Henry Hub gas from 2021-2050. The move was likely to place extra pressure on BP to cut its sacred dividend as the firm's debt mountain increased.

BP also said the aftermath of the coronavirus pandemic would accelerate the pace of transition to a lower carbon economy and energy system in line with the goals of the 2015 Paris climate agreement.

"We have reset our price outlook to reflect that impact and the likelihood of greater efforts to 'build back better' towards a Paris-consistent world," said chief executive Bernard Looney.

“We are also reviewing plans for some of the exploration prospects on our books,” the company said on Monday, adding that it was assessing the carrying values of intangible assets.

The new price assumptions would result in second quarter post-tax non-cash impairment charges and write-offs of $13bn - $17.5bn. Some oil and gas projects at early exploration stages would also be reviewed.

"The revised average price assumptions for Brent oil and Henry Hub gas for the next 10 years are lower by approximately 30% and 16% respectively," BP said.

AJ Bell investment director Russ Mould said the announcement "feels like (BP) is softening shareholders up for a dividend cut" when the company posed second quarter results at the beginning of August.

“By laying bare the impact of the oil price crash on the business, slashing its oil price assumptions and taking tens of billions of dollars’ worth of write-downs, it is probably hoping any decision on the dividend will be seen in a more sympathetic light. This is particularly as plans for big job cuts have already been announced," he said.

“In hindsight the fact the second quarter dividend was not cut looks increasingly strange particularly given its closest peer, Royal Dutch Shell, was prepared to end its own proud track record on dividends stretching back to the Second World War."

“BP faces the challenge of not just contending with lower oil demand thanks to the economic fall-out from the coronavirus crisis but also a rather painful path to net zero status by 2050. For investors it is hard to look through the current smog of uncertainty to the leaner and cleaner business BP clearly wants to be.”