Oil major BP (BP.) fell 2.8% to 259.8p as heavy write-downs to the value of its oil and gas assets saw it slump to a larger than expected loss.
For the year to through December 2020, the company reported an underlying replacement cost loss of $5.69 billion, compared with a profit of $10 billion year-on-year.
Profit fell sharply in the fourth quarter of the year as the Covid-19 pandemic roiled energy demand, pressuring oil and gas prices and leading to higher exploration write-offs.
For the three months ended 31 December, the company’s underlying replacement-cost profit fell to $115 million from $2.57 billion year-on-year.
Production fell 8.1% to 3,473 million barrels of oil equivalent per day, with upstream output down 9.9%. The company said it was on track to cut net debt to $35 billion between the fourth quarter of 2021 and first quarter of 2022, potentially triggering share buybacks.
‘CONUNDRUM’ FACING BP
AJ Bell investment director Russ Mould commented: ‘The divestment of oil and gas fields has helped reduce net debt, albeit still at quite high levels, and this will help with the transition away from fossil fuels as BP looks to its 2050 net zero carbon target.
‘However, the company is stuck in a conundrum as oil and gas production pays the bills and, crucially, the dividend. Having already slashed the payout significantly in August 2020, shareholders would not take kindly to another dividend cut in the near-term.
‘And yet production is at a four-year low, the company is not replacing the resources it is bringing to the surface and 2021 is off to a poor start.
‘The refining business which has typically provided something of a hedge to lower oil prices, with cheaper crude boosting margins on refined products, has also suffered due to the broad-based nature of the Covid-led demand decline.
‘Cash flow from its traditional assets will also be required to invest in areas like alternative energy, where BP will also face the problem of increasing asset prices and competition from other participants in the sector.’
