BP bows to reality as it writes down $17bn of assets
The oil giant has ditched its conspicuously bullish outlook and written down the value of its assets. Will it cut its dividend too? Matthew Partridge reports


BP has announced that it will slash $17.5bn off the value of its oil and gas assets as it takes a “downbeat” view of longer-term oil prices in the wake of the pandemic, says Anjli Raval in the Financial Times. The company now thinks that Covid-19 will not only have a “lasting impact” on the global economy but will also “accelerate the transition towards cleaner energies”. As a result it is cutting the long-term price assumption for crude oil and natural gas by over a quarter to $55 a barrel in the case of Brent Crude, and to $2.90 per million British thermal units for gas.
BP’s move is long overdue, says Nils Pratley in The Guardian. The recent plunge in crude left BP’s assumption that long-term prices would be around $75 a barrel, already a more bullish outlook that its rivals’, “looking silly”. Still, it means that a chunk of BP’s current oil and gas assets “will never be developed”. This should encourage CEO Bernard Looney to speed up his plan for “greening BP and supporting energy transition”. At present BP’s spending on renewables is limited to a “tokenistic” $500m out of an investment budget that will be $12bn even after the recent “sharp trim”.
Time to go green?
The revised expectations of future oil prices could remove one of the major barriers to increased investment in renewables: higher returns from putting money into oil and gas have “simply been too tempting” for oil majors, says Chris Hughes on Bloomberg. There is even a possibility that BP could decide to “make a virtue of diversification”, offering large business clients “energy from multiple sources in a way that combines security of supply with an increased proportion of renewable provision”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, in the short run the immediate impact will be to weaken BP’s balance sheet by increasing its gearing, the ratio of debt to net assets. Since gearing is a “closely watched ratio”, BP will be under pressure to take action to reduce it, says Emily Gosden in The Times. One option is to reduce debt through asset sales. However, the fact that this is a “terrible part of the cycle” to be selling means that it’s not going to get much cash. This leaves cutting its dividend, at $8.5bn a year the biggest in the FTSE, as the only other option. With rival Shell having already chosen to cut its payout to shareholders, many think it is a question of “when not if” BP will follow suit.
Cutting its dividend could risk anger from shareholders, especially since many think the pandemic will “encourage more people into their cars, pushing up fuel consumption and oil prices”, says George Hay on Breakingviews. BP’s $30-odd billion of cash also allows it to maintain the dividend “for now”. Still, since keeping the payout will hamper further investment in renewables, BP’s choice may be between “annoying shareholders today, or in the future”. In any case, BP’s shares now yield 9%, suggesting investors have already priced in a cut.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Reeves warned against property tax shake-up – 3 ways it could backfire on first-time buyers
Rachel Reeves reportedly has her eye on high-end property taxes in the upcoming Budget, but there are concerns a shake-up could unintentionally hamper those trying to get on the housing ladder
-
Average Brits want to retire five years before they can – who has the widest retirement gap?
Brits are expecting to work for longer than ever but there are big disparities in the number of extra working years predicted. A small tweak could help close the gap
-
Pierre-Édouard Stérin wants to make France great again
Conservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging markets
Opinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growth
Pinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'
Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with follies
The best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuation
AEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefully
Shares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?