stock surged 6.7% on Tuesday even after the oil giant cut its dividend for the first time in a decade after reporting a $16.8 billion second quarter loss.However, the oil major beat expectations and surprised investors by revealing a new green strategy to cut oil and gas production by 40% and increase low-carbon investment tenfold to around $5 billion a year by 2030.The back story. The second quarter has been miserable for the worlds biggest oil companies, as the coronavirus pandemic has seen demand collapse and prices fall.
BP (ticker: BP) warned in June it expected charges of between $13 billion and $17.5 billion in the second quarter, as it lowered long-term oil price forecasts and took steps on a strategy to become net zero on carbon by 2050. The British energy giant also announced a review of plans to develop some of its oil and gas exploration sites, and said it would cut 10,000 jobs worldwide after the global slump in oil demand.
Whats new. BPs numbers reaffirmed the sectors second-quarter misery as the company slumped to a record underlying loss of $6.7 billion, from $2.8 billion profit in the year-ago period. Strong performance in its oil trading division helped it beat expectations.
The London-headquartered multinational lowered its long-term oil and gas price assumptions, as it warned weaker demand for energy could last for a sustained period. It now expects Brent crude prices to be between $50 and $60 per barrel over the next 30 years, from a previous estimate of $70. As a result, the company took a $9.2 billion write-down on the value of its assets, while a review of exploration prospects led to a $1.7 billion write-down. BP recorded total impairments of $17.4 billion.
The quarterly dividend cuthalved from 10.5 cents per share to 5.25 cents per sharecame as no surprise. The major surprise came earlier in the year when BP stuck to its dividend in the first quarter, while rival
Royal Dutch Shell
(RDS.A) cut shareholder payouts for the first time since World War II. For U.S. holders of BPs ADR, the dividend was cut to 31.5 cents per share per quarter, down from 63 cents. The ADRs still yield around 5%.
Looking ahead. BPs dividend cut was entirely expected so investors largely ignored it. In fact, the 50% dividend cut is less severe than Shell, which cut its payout by two-thirds in April. The companys ambitious pivot toward a lower carbon future and plans to spend billions in the next 10 years have also caught the eye.
As bad as the second quarter was, BP also managed to beat expectations and report an impressive performance in its trading operations. The loss BP announced this morning, linked to the write-down of the valuation of its assets, was no worse than analysts had expected, likely prompting a measure of relief, AJ Bell investment director Russ Mould said. And the benefit of being involved in almost every aspect of the oil market was revealed by a strong showing from its trading division as it benefited from all the volatility, he added.
BPs dividend cut and new green strategy shows it is finally facing up to the challenges ahead, but it may not make those challenges any easier.