BP expects Covid-19 to have 'enduring impact on global economy'
Oil and gas company could take hit of up to $17.5bn from write-offs
BP believes the coronavirus pandemic will accelerate the pace of transition to a lower-carbon economy and energy system.
Photograph: Luke MacGregor/Reuters
BP has told shareholders that it could write down the value of its assets by up to $17.5bn (£14bn) as it reduced its long-term forecast for oil prices and warned that the Covid-19 pandemic would have a lasting impact on the global economy.
The energy giant slashed its forecast for Brent crude oil prices to $55 a barrel from $75 a barrel and said the coronavirus crisis would speed up the shift to a lower-carbon economy.
In an unscheduled update, Bernard Looney, BP’s chief executive, said: “In February we set out to become a net zero company by 2050 or sooner. Since then we have been in action, developing our strategy to become a more diversified, resilient and lower-carbon company. As part of that process, we have been reviewing our price assumptions over a longer horizon. That work has been informed by the Covid-19 pandemic, which increasingly looks as if it will have an enduring economic impact.”
Shares fell 5% to 306p after the unscheduled update was published on Monday, making it one of the biggest fallers on the FTSE 100.
BP said the aftermath of the pandemic will accelerate the pace of transition to a lower-carbon economy and energy system, as countries seek to make their economies more resilient in the future.
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Job cuts in the travel, aviation, automotive, oil and energy industries
The jet-engine manufacturer has confirmed that 3,000 job cuts, of a planned 9,000 worldwide, will be made in the UK. Rolls-Royce will make the first round of redundancies through a voluntary programme, with about 1,500 posts being lost at its headquarters in Derby, as well as 700 redundancies in Inchinnan, near Glasgow, another 200 at its Barnoldswick site in Lancashire, and 175 in Solihull, Warwickshire.
The luxury carmaker intends to shrink its workforce by almost a quarter, slashing 1,000 roles through a voluntary redundancy scheme. The majority of Bentley’s 4,200 workers are based in Crewe in Cheshire.
The Warwickshire-based luxury car manufacturer has also announced 500 redundancies.
The oil company plans to make 10,000 people redundant worldwide, including an estimated 2,000 in the UK, by the end of the year. The BP chief executive, Bernard Looney, said that the majority of people affected would be those in office-based jobs, including at the most senior levels. BP said it would reduce the number of group leaders by a third, and protect the “frontline” of the company, in its operations.
The UK flag carrier is holding consultations to make up to 12,000 of its staff redundant, a reduction of one in four jobs at the airline. BA intends to cut roles among its cabin crew, pilots and ground staff, while significantly reducing its operations at Gatwick airport.
Richard Branson’s airline is to cut more than 3,000 jobs, more than a third of its workforce, and will shut its operations at Gatwick.
The airline has announced plans to cut 4,500 employees, or 30% of its workforce.
The Irish airline intends to slash 3,000 roles and reduce staff pay by up to a fifth.
The shipping firm intends to cut more than a quarter of its workforce, a loss of 1,100 jobs. The company, which operates passenger ferries between Dover and Calais, and across the Irish Sea, as well as Hull to Rotterdam and Zeebrugge, will initially offer employees voluntary redundancy.
The owner of British Gas is to slash 5,000 jobs, saying it was looking to cut costs by simplifying its business structure. The company is removing three layers of management, with more than half of the job losses falling on leadership roles, including half its 40-strong senior team.
A major supplier of material for catalytic converters in cars, Johnson Matthey announced plans to make 2,500 redundancies worldwide, or 17% of its total workforce. The group said it was the result of the impact of the pandemic, and the uncertain outlook for the car industry.
Voluntary redundancy has been offered to all of its 7,000 direct employees after coronavirus wiped out its passenger traffic.
Photograph: Bloomberg
Referring to the 2015 Paris climate agreement, 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. 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.”
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BP expects Brent crude oil to average about $55 a barrel between 2021 and 2050, and $2.90 per million British thermal units for Henry Hub gas, the benchmark for natural gas. The forecasts are 27% and 31% lower respectively than the average prices used in its latest annual report. Brent crude is currently trading at $37.50 a barrel.
The company estimates that this will result in write-offs of $13bn to $17.5bn, which will drag down its financial results in the second quarter. It is also reviewing whether to develop some of its potential oilfields.
Looney said that since BP pledged in February to become a net zero carbon company by 2050 or sooner, it had been working on its strategy and reviewed its price assumptions over a longer period. That work has been informed by the coronavirus pandemic, which brought economies around the world to a standstill and has sharply reduced demand for oil and gas.
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