BP Offers Grim Forecast on the Future of Oil

Issue 23

06.15.20 - BP’s potential $18 billion write-down 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.

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.

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.
A few weeks ago, CEO Bernard Looney was unapologetic about maintaining the payout amid the pandemic, suggesting the board would wait and see how the crisis developed. The contrast between that message and the hard conclusions aired on Monday couldn’t be starker.

It may be some time before the returns BP makes from clean energy can compare with those from oil. Perhaps it can make a virtue of diversification, offering large business client’s energy from multiple sources in a way that combines security of supply with an increased proportion of renewable provision.

Source: Financial Times