Picture: REUTERS/LUKE MacGREGOR
Picture: REUTERS/LUKE MacGREGOR

London — BP has slashed its dividend for the first time in a decade and set out new targets to accelerate its shift to greener energy after the coronavirus pandemic upended the oil business.

The U-turn in its dividend policy was expected after European peer Royal Dutch Shell cut its own payout in April. Big Oil’s generous dividends have long been its main attraction to shareholders, and the move — hastened by the coronavirus but made inevitable by the transition to cleaner energy — redraws the company’s investment profile.

BP paired the payout news with more details for investors of its net-zero strategy — bringing forward announcements expected in September. It’s targeting a radical 40% decline in hydrocarbon production, a 10-fold increase in low-carbon investment and a leap in renewable-power capacity to about 50GW by 2030. It won’t explore for oil in any new countries.

“Whatever the devils that will no doubt emerge in the detail, this is a pretty big change from BP,” Greenpeace UK’s chief scientist Doug Parr tweeted in an unusual show of support.

BP shares surged as much as 8.3% on Tuesday, trading up 7.4% at 301.7p as of 10.14am. London time. That’s the biggest gain on the Stoxx Europe 600 oil and gas index, suggesting that the dividend cut was already priced in.

CEO Bernard Looney is taking the opportunity presented by the virus to speed up the changes he needs to make to fulfil his vision of a low-carbon future. But the company went into the crisis with high debt and hefty payouts — it even increased the dividend for the fourth quarter — meaning more pain now.

BP reported an adjusted net loss of $6.68bn for the second quarter, following a $2.81bn profit a year earlier. It was a narrower loss than expected as BP said its trading division performed strongly. It cut its dividend to 5.25c a share and scrapped its progressive payout policy.

“It’s very simple,” Looney said about the 50% dividend cut. “The change is rooted in strategy, deeply rooted in strategy, and amplified by Covid-19.”

Net debt fell 20% from the previous quarter to $40.9bn, while gearing — the ratio of debt to equity — dropped to 33.1% from 36.2%. Despite the decline, the level remains well above BP’s comfort range of 20%-30%. The company aims to reduce debt to $35bn, at which point it plans to return at least 60% of surplus cash flow to shareholders via buybacks.

“This strategic shift is encouraging — much more clarity, apparently not sacrificing returns,” Stuart Joyner, an analyst at Redburn, said in a note. BP is “making proper progress towards pleasing environmental, social and governance (ESG) investors” as the “journey unfolds towards a higher-rated, lower-geared company”.

Virtually every part of BP’s business, from its forecourts to its oil and gas production, has been hit by the pandemic’s devastating impact on fuel consumption. But there was one bright spot last quarter: oil trading delivered an “exceptionally strong result”, BP said.

The oil major’s sprawling trading unit capitalised on the period’s volatility and, in particular, made money from contango plays. That trade involves putting cheap oil into storage and simultaneously selling it at higher prices on the forward market. Total, Shell and Equinor all reaped the benefits of contango, with trading gains saving them from a quarterly loss.

US counterparts ExxonMobil and Chevron, which have a more timid approach to trading, posted their worst set of quarterly results of the modern era.

In Tuesday’s statement:

  • BP is targeting a 30%-35% decline in emissions from its operations and a 35%-40% cut in carbon output from oil and gas production by 2030.

  • Over the same period, BP sees refining throughput falling to about 1.2-million barrels per day from 1.7-million in 2019.
  • Investment in low-carbon energy will increase to about $5bn a year from about $500m.

  • Renewable-power capacity will rise to about 50GW from 2.5GW last year, while electric-vehicle charging points will jump to more than 70,000 from 7,500.

Bloomberg

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