“The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.”
― Omar Khayyám
Continue reading “BP Writedown is Writing on the Wall”BP Plc’s potential $18 billion writedown underscores just how significant a turning point 2020 is becoming for the oil industry. It baldly acknowledges that the major hydrocarbon producers are sitting on oil fields that will never be developed — because the pandemic has curbed energy demand and increased the desire for renewables within the supply mix.
The British oil giant has a new chief executive officer and a new finance director and it was already trying to break with the past before the impact of the Covid-19 crisis became fully apparent. The outbreak has prompted a more radical reassessment of BP’s future role and what its assets are worth.
BP’s assumption is that the long-term price of Brent crude will be about $55 per barrel, up to 30% lower than it thought previously. Among its oil major peers, the company’s management is shifting from the bullish to the bearish group. On that basis, some fields won’t earn adequate returns, and some of the world’s fossil fuels that would have been extracted and burnt now won’t be.
It’s a moment to be compared not only with peers’ comments of late, but with the seismic revaluations the industry has inflicted on investors over the past two decades — think ConocoPhillips’s $34 billion of asset impairments in the financial crisis.
The shift partly reflects the near-term reduction in economic activity. Energy demand is driven by gross domestic product and that’s expected to be sharply lower this year and next. BP also sees the pandemic accelerating the move to cleaner forms of energy as policymakers look to restart economies using less conventional energy, pushing up the cost of emitting carbon.
