BP sees enduring impact of Covid-19 on global economy
BP says it now sees the prospect of the global Covid-19 pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.
As a result, the oil major said it has revised its long-term price assumptions, lowering them and extending the period covered to 2050.
BP also said that it has a growing expectation that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to ‘build back better’ so that their economies will be more resilient in the future.
BP said that it has now revised its investment appraisal long-term price assumptions to an average of around USD55 per barrel for Brent crude and USD2.90 per mmBtu for Henry Hub gas from 2021-2050.
The British oil major estimates non-cash, pre-tax impairment charges against property, plant & equipment (PP&E) to be in the range of USD8 billion to USD11 billion, and write-offs of exploration intangibles in the range of USD8 billion to USD10 billion. These will be reported in its second-quarter 2020 results, the company says.
“In February we set out to become a net zero company by 2050 or sooner,” said Bernard Looney, BP CEO.
“Since then we have been in action, developing our strategy to become a more diversified, resilient and lower carbon company. As part of that process, we have been reviewing our price assumptions over a longer horizon. That work has been informed by the COVID-19 pandemic, which increasingly looks as if it will have an enduring economic impact.
“So, we have reset our price outlook to reflect that impact and the likelihood of greater efforts to ‘build back better’ towards a Paris-consistent world. We are also reviewing our development plans. 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’s impairment and intangible assets assessments are still in progress, however, and it is not possible at this time to precisely determine the impact of the revised impairment testing price assumptions, or the outcome of the assessment of intangible assets, on the group’s financial statements, the company added.