BP will seek to slash its breakeven oil price from $56 a barrel in 2019 to $35 a barrel by 2021, chief executive Bernard Looney told Reuters.
The supermajor has announced cost cuts of 25 percent for 2020, with the option of a further reduction by $1 to 2 billion from the after-cut budget of $12 billion.
BP reported a sharp drop in first-quarter underlying profits to $800 million from $2.4 billion a year earlier. The net result—expressed as replacement cost profit—stood at a negative $600 million versus a positive $2.1 billion for the first quarter of 2019.
The result was not a total surprise. The whole oil industry is battling a slump in demand and excessive production. However, unlike other players, BP has stuck to its dividend.
This decision was surprising, the chief market analyst of online trading firm IG told Oilprice. BP, Chris Beauchamp said, was “likely judging that the hit to its cash pile is outweighed by the headline risks to confidence that could follow should one of the UK’s big dividend firms have to cut back its payout.”
At the same time, BP’s management is aware that the crisis will not be short-lived. “We’re in this for quite some time,” Looney told Reuters, adding that BP expected demand for crude to fall by about 15 million barrels daily in the current quarter, which would be equal to a 15-percent piece of 2019 consumption.
The company also reported a sharp $6-billion increase in its net debt, to as much as $51.4 billion. However, according to IG’s Beauchamp, investors are relatively upbeat.
“Big name oil firms have managed to decouple their share prices from the ongoing carnage, another sign of investors heroically looking to the future, but unless demand rebounds quickly, and in a big way, the problems are not going to disappear,” he said.BP