Oil major BP has outlined the measures it is taking in response to the COVID-19 pandemic and ongoing market disruption, including a 25 percent cut in capital expenditure. BP has stressed that there will be no layoffs in the next three months as a result of coronavirus cost cuts.
In addition to revealing its action plan to combat the current market environment, BP also provided an update on Wednesday on factors expected to impact its first-quarter results.
BP said it is mobilizing in its own way across the BP world, taking action with three clear objectives: protecting its people; supporting communities and strengthening their finances.
In terms of jobs, BP (jobs for captains) noted that job security is a big concern at the moment, so the company has decided that no BP employees will be made redundant over the next three months as a result of cost cuts related to virus.
“We simply don't want to add another burden to what is already an incredibly stressful time for individuals and families,” BP chief executive Bernard Looney said.
Looney added: “At the same time, we are taking steps to protect the financial health of BP. This may be the toughest environment for the oil and gas business in decades, but I'm confident we will get through it - we know what to do, and we've done it before. And we also entered this environment in great shape with good operational momentum and financial discipline, strong liquidity and extensive options in our portfolio. We remain committed to growing sustainable free cash flow and distributing it to our shareholders over the long term.”
“We are now acting quickly and decisively to further strengthen our financial structure in response to the current volatile and extremely challenging market conditions. We will continue to consider these actions and any further actions that may be appropriate in response to changes in prevailing market conditions.”
Asset disposal program
BP's existing divestment program (jobs for captains), which calls for the implementation of announced deals worth $15 billion by mid-2021, remains in place. The phase-in of $10 billion in proceeds from asset sales by the end of 2020 may be revised. This includes the sale of the Alaska business to Hilcorp, which BP still expects to complete during 2020.
To date, $9.6 billion in deals have been announced since the start of 2019, with approximately $3.4 billion in cash flows received. This divestment program is supported by a wide range of options, including assets in less commodity-sensitive companies where demand remains strong.
Capital costs reduced by 25% (work for captains)
BP now expects organic capital spending to be around 12 billion by 2020, down about 25% from its previous annual guidance.
In the mining business, this includes cutting approximately $1 billion in spending on near-term onshore activities, including at BPX Energy, as well as deferring some exploration and appraisal activities and optimizing key project costs.
Downstream, BP also expects cost cuts of about $1 billion, which includes cuts in fuel marketing, refining and petrochemicals.
The expected impact of these capex interventions on underlying oil production through 2020 includes the current reduction of approximately 70 thousand barrels equivalent per day (mboed) associated with BPX Energy. Looking ahead, base upstream oil production will be lower throughout 2020.
Saving
BP expects to achieve around £2.5 billion in cash savings by the end of 2021, compared with 2019, with digitalization and increased integration across the group as key drivers of this next phase of cost efficiency improvements.
Some of these savings may be associated with restructuring costs, which will be reflected in the financial statements accordingly.
Liquidity and production
At the end of the first quarter of 2020, BP had approximately $32 billion in cash and uncommitted funds. Last week, S&P confirmed BP's A-credit rating, revising its outlook from positive to stable. And today Moody’s confirmed BP’s credit rating at A1 and revised the outlook from Stable to negative (job for captains).
BP's first-quarter oil production is expected to be lower than in the fourth quarter of 2019, in the range of 2,550-2,600 million barrels per day.
BP continues to review potential impairment charges in the first quarter and currently expects to take non-cash, non-rational charges of approximately $1 billion in the quarter.
Looney concluded: “I have been incredibly inspired by the response of colleagues around the world to the coronavirus situation. They look out for each other, support their communities, and identify new ways to safely reduce costs and strengthen our finances. I truly believe that our purpose is the driving force behind our actions during this crisis. That’s why I’m confident we will weather this storm and emerge better positioned to achieve our ambition to make BP a net zero company by 2050 or sooner and help the world achieve the same goal.”
Source: worldmaritimenews
