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Energy producer BP takes $17.5 billion hit as demand slides

1 year 3 months 1 week ago Monday, June 15 2020 Jun 15, 2020 June 15, 2020 5:25 AM June 15, 2020 in News
Source: Associated Press
BP petrochemical plant Photo: BP/Instagram

LONDON — UK-based energy company, BP announced Monday it lowered its oil price expectations through 2050, citing the COVID-19 pandemic as the reason the company would accelerate its transition to a lower-carbon economy and energy system.

In February, BP said it had been evaluating its portfolio and capital development strategies as part of its aim to eventually produce as much renewable energy on-site as it consumes annually, making it a net-zero company.

The oil and gas giant had hoped to achieve this by 2050 or sooner.

Chief Executive Bernard Looney said the pandemic is forcing the company to face the long-term impact on the economy, together with the likelihood of weaker demand for a longer period of time.

“We are also reviewing our development plans,″ Looney said. “All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”

BP now expects Henry Hub, which is a natural gas pipeline located in Louisiana that serves as the official delivery location for futures contracts on the New York Mercantile Exchange international benchmark, to average $2.90 from 2021 through to 2050.

BP’s forecasts for Brent futures and Henry Hub gas prices are down roughly 27% and 31%, respectively, when contrasted to those indicated in the company's annual report at the end of 2019.  

As a consequence of its long-term strategic planning and continued focus on capital discipline, BP said it expected to incur non-cash impairment charges and write-offs in the second quarter, estimated to be in an aggregate range of $13 billion to $17.5 billion after tax.

The company said it was unable to precisely determine the impact of the revised impairment testing price assumptions on the group’s financial statements.

Additional information is expected to be revealed in the firm’s second-quarter results, which will be released on August 4.

Supply of oil and gas was particularly high when the outbreak began, creating a perfect storm for the industry. With storage facilities filling up, the U.S. price of oil went below zero in April for the first time ever.

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