BP reports second-quarter loss after major write downs, halves dividend

A BP company logo at a gas station in London, U.K.

Chris Ratcliffe | Bloomberg | Getty Images

Energy giant BP reported a significant loss for the second quarter on Tuesday, after downgrading the value of some of its assets on expectations of lower commodity prices.

Second-quarter underlying replacement cost profit, used as a proxy for net profit, came in at a loss of $6.7 billion, meeting expectations of analysts polled by Refinitiv. That compared with a net profit of $800 million in the first quarter of the year.

BP also announced that it had halved its dividend to 5.25 cents per share for the quarter, compared to 10.5 cents per share for the first three months of the year.

The reported loss for the quarter was $16.8 billion, which includes a post-tax charge of $10.9 billion for non-operating items. It compares to a loss of $4.4 billion over the first three months of 2020.

The breakdown of this figure included $9.2 billion in impairments across the group, largely due to BP's revised forecast for oil and gas prices over the next 30 years, and $1.7 billion of exploration write-offs.

The U.K.-based oil and gas company said last month that it could incur non-cash impairment charges and write-offs in the second quarter, estimating an aggregate range of $13 billion to $17.5 billion after tax. At the time, BP said the "enduring" impact of the coronavirus pandemic had prompted the firm to lower its oil and price forecasts through to 2050.

"These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent bp," Bernard Looney, CEO of BP, said in a statement on Tuesday.

"In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact. Beneath these, however, our performance remained resilient, with good cash flow and – most importantly – safe and reliable operations," he added.

Shares of BP are down more than 40% year-to-date.

'BP has woken up'

International benchmark Brent crude futures traded at $44.02 a barrel on Tuesday morning, down more than 0.3%, while West Texas Intermediate (WTI) crude futures stood at $40.89, around 0.3% lower.

Analysts had anticipated that "Big Oil" companies, referring to the world's largest energy majors, were likely to report "horrendous" second-quarter results as coronavirus lockdown measures coincided with an unparalleled demand shock and significantly weaker oil and gas prices.

However, some companies have been able to limit the damage as their trading divisions have capitalized on heightened market volatility.

It is a decision that we wholeheartedly believe is in the long-term interest of our stakeholders.

Bernard Looney

BP CEO

Alongside BP's second-quarter earnings, the energy giant announced a new strategy that it says will help the firm shift to clean energy in line with its plan to become a net-zero-carbon company by 2050 or sooner. 

The company said that, within 10 years, it plans to raise its annual low carbon investment 10-fold to around $5 billion a year. It also aims to have developed around 50 gigawatts of net renewable generating capacity by 2030 – a 20-fold increase from 2019.

"We believe that what we are setting out today offers a compelling and attractive long-term proposition for all investors — a reset and resilient dividend with a commitment to share buybacks; profitable growth; and the opportunity to invest in the energy transition," BP's Looney said in a press release.

"I want to acknowledge the impact the reset dividend will have on many – whether individual retail investors or large holders," Looney said. "However, it is a decision that we wholeheartedly believe is in the long-term interest of our stakeholders."

BP also committed to lower oil and gas production by 40% from current levels by the end of the decade "through active portfolio management" and said it would "begin no exploration in new countries."

In response to BP's new strategy announcements, Mel Evans, senior climate campaigner for Greenpeace UK, said: "BP has woken up to the immediate need to cut carbon emissions this decade."

"Slashing oil and gas production and investing in renewable energy is what Shell and the rest of the oil industry needs to do for the world to stand a chance of meeting our global climate targets," Evans continued. "BP must go further, and needs to account for or ditch its share in Russian oil company, Rosneft. But this is a necessary and encouraging start."

Shell was not immediately available to comment when contacted by CNBC on Tuesday.

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