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June 15, 2020, 9:54 a.m. EDT

BP to take up to $17.5 billion in charges as it lowers oil-price assumption

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By Steve Goldstein, MarketWatch

Getty Images
A general view of a BP refinery in the Port of Rotterdam.

Oil major BP on Monday said it was taking up to $17.5 billion in charges as it lowers its assumptions for the fossil fuels it sells.

BP /zigman2/quotes/202286639/delayed UK:BP -0.69%   /zigman2/quotes/207305210/composite BP -4.75%  said a charge will range from $13 billion to $17.5 billion in the second quarter, citing both its review of assumptions as it seeks to become net-zero on carbon emissions by 2050 as well as the impact of COVID-19 on the global economy.

“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,” said CEO Bernard Looney in a statement.

BP said the pandemic is having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.

BP said it’s now forecasting a Brent oil price /zigman2/quotes/209704782/delayed UK:BRN00 +0.07%   for the long term of $55, which is down from its previous estimate of $70.

BP’s estimate for crude is still well above August futures, which traded at $37.40 on Monday morning.

It’s forecasting a natural gas price /zigman2/quotes/210189548/delayed NG00 -2.89%  of $2.90 per mmBtu for Henry Hub gas, down from $4.

BP said those prices are “broadly in line with a range of transition paths consistent with the Paris climate goals.”

BP said it currently estimates that non-cash, pre-tax impairment charges against property, plant & equipment in the range of $8 billion to $11 billion, and write-offs of exploration intangibles in the range of $8 billion to $10 billion.

At the end of the first quarter, BP’s property, plant & equipment was valued at $88.6 billion in the oil and gas properties and intangible assets were $14.2 billion in the exploration business.

BP shares traded 3% lower in London.

Analysts said the move could precede a dividend cut, which rival Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA -0.90%   already has done.

“This morning’s announcement may be the management’s way of softening the blow and leading us to expect a cut in the dividend when they publish the second quarter results in early August,” said Helal Miah, investment research analyst at The Share Centre.

The market is pricing in a 65% dividend reduction if BP is trading at the same level of Shell, according to Jefferies analyst Jason Gammel.

UK : U.K.: London
300.35 p
-2.10 -0.69%
Volume: 22.81M
Jan. 18, 2021 4:35p
P/E Ratio
Dividend Yield
Market Cap
£61.04 billion
Rev. per Employee
$ 24.26
-1.21 -4.75%
Volume: 24.06M
Jan. 15, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$82.90 billion
Rev. per Employee
UK : U.K. ICE Futures Europe
$ 54.79
+0.04 +0.07%
Volume: 139,358
Jan. 18, 2021 10:59p
US : U.S.: Nymex
$ 2.62
-0.08 -2.89%
Volume: 23,411
Jan. 18, 2021 6:41p
UK : U.K.: London
£ 1,469.60
-13.40 -0.90%
Volume: 2.32M
Jan. 18, 2021 4:35p
P/E Ratio
Dividend Yield
Market Cap
£113.10 billion
Rev. per Employee

Steve Goldstein is MarketWatch markets editor for Europe. Follow him on Twitter: @MKTWgoldstein.

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