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BP plunges into first-quarter loss after oil price collapse BP plunges into first-quarter loss after oil price collapse
(about 3 hours later)
Speculation multinational may break with convention and cut dividend to survive coronavirus crisis ‘Exceptionally challenging market’ blamed for loss but oil giant vows to still pay increased dividend
BP has reported a loss for the first months of the year because of the collapse of global oil prices following the coronavirus outbreak. BP plunged to a loss for the first three months of the year amid rising debt and plummeting global oil prices but will still pay its shareholders a rising dividend.
The oil multinational said “exceptionally challenging” market conditions had led to a loss of $628m (£502m) for the first quarter, compared with a profit of $2bn in the first months of 2019. The collapse in oil demand due to the coronavirus pandemic drove BP to a $628m (£505m) loss for the first quarter, compared with a profit of $2bn in the same period last year.
On a replacement cost basis – its preferred measure – profits tumbled by two-thirds to $791m for the quarter compared with $2.35bn last year. BP said the “exceptionally challenging” market conditions caused the company’s underlying replacement cost profits, its preferred profit metric, to tumble by two-thirds to $791m for the quarter compared with $2.35bn last year.
The bottom line was better than analysts had expected, after coronavirus lockdown restrictions caused oil prices to collapse. The oil giant told investors it faces an “exceptional level of uncertainty” and the risk of “more sustained consequences” ahead, including higher debt, lower spending and cuts to its workforce.
BP said there was an “exceptional level of uncertainty” over the near-term impact of Covid-19 on the global oil market, and a risk of “more sustained consequences” for the company. But the FTSE 100 energy company will still pay shareholders, including thousands of retail investors and pension funds, a dividend for the past three months.
The average oil price in the first quarter of 2020 was $50 a barrel, compared with $63 in the first quarter of 2019. In the past week the price of Brent crude, the international oil price benchmark, fell to 21-year lows of $16. “Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward,” said BP boss Bernard Looney. “It is brutal, the future is unknowable, but equally I am confident that we will get through this.”
Despite the unprecedented oil market collapse, BP will maintain its shareholder dividend for the quarter at 10.5 cents a share, up 2.4% from last year’s first-quarter payout, amid rising speculation that big oil companies will need to break with convention by cutting dividends to survive the crisis. BP will maintain its shareholder dividend for the quarter with a payout of 10.5 cents a share, up 2.4% from last year’s first-quarter payout, amid rising speculation that major oil firms will need to break a long-held taboo by cutting dividends to survive the coronavirus crisis.
BP has cut its dividend only twice in the past 30 years; the last time was after the Deepwater Horizon tragedy in 2010, in which 11 people died and which caused multibillion-dollar damage to the environment. BP has cut its dividend only twice in the last 30 years, the latest was in the wake of the Deepwater Horizon tragedy in 2010, which led to 11 fatalities and financial costs of more than $65bn.
Bernard Looney, the BP chief executive, said: “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 have been tested many times over our history. But we always respond, and we know how to respond,” Looney told investors.
“We are taking decisive actions to strengthen our finances – reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower. We are determined to perform with purpose and remain committed to delivering our net-zero ambition.” The oil market crisis, which has caused prices to plummet to 21-year lows and even turn negative in the US, has emerged as BP prepares to undertake a major corporate overhaul to push it towards an ambition to be ‘net zero’ by 2050.
Looney told the Guardian that no BP employees will leave the company over the next three months although job cuts are expected by the end of the year as part of the planned restructuring which remains on track.
Analysts have warned that BP’s commitment to the dividend may come at a cost.
BP’s debt has climbed by almost $6bn in recent months to reach $51.4bn in the first quarter. Analysts expect it will continue to rise over the year.
“The key question at this point is how far BP is willing to push the balance sheet in order to protect its dividend,” said Biraj Borkhataria, an analyst at RBC Capital. “As if it does, it will likely spend the balance of 2020 and 2021 trying to pay down debt.”
BP has also announced a 25% cut in spending in response to the coronavirus outbreak to around $12bn for 2020, and new borrowing facilities to increase its liquidity.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said “drastic cuts” to BP’s spending plans “should help ease the pressure for now”.
“But longer term the group needs higher oil prices or lower operating costs, and ideally both.”
BP expects to be able to dramatically lower its costs so it can balance its books even from a breakeven oil price of $56 a barrel last year to $35 a barrel for 2020.
The average oil price in the first quarter of the year was $50 a barrel, compared with $63 a barrel in the first quarter of 2019. In the last week the price of Brent crude, the international oil price benchmark, fell to $16 a barrel.