BP (BP.) has laid out its plan to get through the low oil price environment weeks after the price crashed as a result of Saudi Arabia upping supply while demand has plunged due to Covid-19. The supermajor will cut spending by a quarter this year, to $12bn (£9.6bn). Around $1bn of this will come from its onshore US division BPX Energy, seeing production fall this year.
The change in oil price forecasts will also see a $1bn impairment.
Another potential headache is cash potentially not arriving from its major divestment scheme, set to bring in $15bn by the end of next year. While $10bn in assets have been sold, the actual payments may be delayed, BP said. “The phasing of receipt of $10 billion of divestment proceeds by the end of 2020 may be revised as transactions complete, particularly while volatile market conditions persist,” the company said. This includes the $5.6bn Purdue Bay field and pipeline sale, which BP said would still be done by the end of the year.
The production drop comes from its onshore US operations, with a decline of around 70,000 barrels of oil per day (bopd) expected. In the first quarter, BP’s production was 2.55-2.6m bopd. The balance sheet will take a $1bn impairment hit from the fall in the oil price, as the company changes its 2020 forecasts. Panmure Gordon analyst Colin Smith said BP kept to similar levels of spending cuts already announced by peers, although it had already been banking on taking in expected divestment cash of $7bn-$9bn.
BP’s fellow supermajor Royal Dutch Shell (RDSB) - which Mr Smith said was more likely to maintain its dividend - announced major spending cuts and suspended its buyback programme on 23 March.
Both companies were up over 8 per cent on Thursday on hopes of a resolution to the Saudi/Russia spat that caused the oil supply ramp up, after US president Donald Trump called for a detente. Deutsche Bank analyst Michael Hseuh said a quick fix to the supply issue was unlikely because of the “strategic rationale to constraining non-Opec supply”.
The Organisation of Petroleum Exporting Countries (Opec) does not include the US, which has more expensive onshore supply. Citigroup sees Brent crude at a $23 per barrel (bbl) average in the June quarter and $36/bbl for the full year, while BMO is more optimistic with a $42/bbl forecast for the full year.
