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Oil giant BP slashes dividend as virus hastens moves to curb oil output
[LONDON] 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 per cent 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 per cent at the open on Tuesday, trading up 5.5 per cent at 296.45 pence as of 8.18am London time.
Chief executive officer (CEO) 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.
Will Hares, European oil analyst for Bloomberg Intelligence, said: “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.”
The company reported an adjusted net loss of US$6.68 billion for the second quarter, following a US$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,” Mr Looney said about the 50 per cent dividend cut. “The change is rooted in strategy, deeply rooted in strategy, and amplified by Covid.”
BP’s progressive dividend policy is scrapped. The company said it will return at least 60 per cent of surplus cash as share buybacks
It’s targeting a 30-35 per cent decline in emissions from its operations and a 35-40 per cent 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 US$5 billion a year from about US$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 US$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 capitalised 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 and Chevron, which have a more timid approach to trading, posted their worst set of quarterly results of the modern era.