BP Writes Off $17.5bn on Downwardly Revised Crude Outlook

BP Writes Off $17.5bn on Downwardly Revised Crude Outlook
June 17, 2020


The oil and gas giant BP PLC (NYSE: BP, LSE: BP-GB) announced that it intends to write down $17.50 billion for the current quarter, after downwardly revising its long-term oil and gas prices forecast. BP also plans to quickly move away from fossil fuels. The stock closed at $24.55 Tuesday, almost unchanged from the previous close.

The London-headquartered BP stated that it had downwardly revised its oil price forecasts through to 2050 as it believes that the COVID-19 outbreak would expedite the shift to an eco-friendly energy-based economy.

BP is also revisiting its capital expenditure and portfolio plans in order to become a net-zero (produce as much renewable energy as they consume annually) company by 2050 or earlier. The company now anticipates global benchmark Brent crude futures to average roughly $55 per barrel from 2021 through to 2050, with Henry Hub gas prices estimated to average $2.90 over the aforementioned period.

Henry Hub is a natural gas pipeline situated in Louisianna and functions as the authorized delivery venue for futures contracts on the NYME (New York Mercantile Exchange). In comparison to the reference prices used in the company’s annual report published at the end of 2019, forecasts for Henry Hub gas prices and Brent futures have been downwardly revised by 31% and 27%, respectively.

As a consequence of long-lasting strategic preparations and ongoing focus on capital control measures, BP stated that it anticipates sustaining non-cash impairment charges and write-offs in 2Q 2020, assessed to be in a combined range of between $13 billion and $17.50 billion, after tax.

The company stated that it was not able to accurately assess the effect of the amended impairment testing price preconceptions on the financial statements of the group. However, the company clarified that it would provide additional details at the time of reporting its second-quarter results, scheduled to be released on August 4th.

Earlier in June, BP stated that it would trim 10,000 jobs from the prevailing 70,100 in response to the COVID-19 outbreak, with a significant portion of job cuts to become effective by the end of this year.

Bernard Looney, chief executive of BP, opined that the COVID-19 outbreak would have a long-lasting impact on the economy.

Looney said, “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.”

The CEO also revealed that the company is revising development programs, and tough decisions that need to be taken will enable it to steer through the transition process in a competitive manner. He said, “We are also reviewing our development plans. All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions — rooted in our net zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”

Looney, back in mid-February, has set out a new path, titled “Reimagining energy, reinventing BP” for the company. It underlined the oil and gas company’s desire to turn into a net-zero firm by 2050 or earlier.

The outbreak of COVID-19 has only made BP double down on its objective. According to Looney, the unexpected jolt on demand had forced the company to become more focused on achieving its goal. He further pointed out that the virus outbreak has increased the complexity of oil-related forecasts and showed the delicacy of the ecosystem, making renewable energy an attractive option.  The downward revision of crude price and large write down is expected to keep the stock bearish in the short-term.

The price chart indicates that the stock has broken below its 50-day moving average. The next support is anticipated only near 18. Additionally, the stochastic RSI is also in the overbought region. Therefore, we are expecting the stock to remain bearish in the short-term.

BP - technical analysis - 17th June 2020

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world

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