BP Takes A $17.5 Billion Hit As Giant Ditches Oil Exploration Projects

BP expects to hit a value of something between $13 and $17.5 billion with its assets by the end of June, after abandoning long-term oil and gas exploration projects.

One of the oil majors, BP has been accelerating its plan for a low carbon future this year and – as part of that project – announced on Monday that they have been reviewing price assumptions.

In February, the company announced a new ambition “to become a net zero company by 2050 or sooner and to help the world get to net zero”. Then, the coronavirus crisis has seen oil prices plunge to record low levels.

“That work has been informed by the COVID-19 pandemic, which increasingly looks as if it will have an enduring economic impact”, said BP’s group chief executive Bernard Looney.

“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.” 

Looney added that it “will result in a significant charge in our upcoming results”, however he is optimistic. “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.”

Besides impairments and write-offs, to become lower-carbon, BP pursued a structural reorganization and recently decided to reduce workforce by about 10,000 people.

Those decisions had mixed reactions among environmental NGOs.

“It has been clear for years that fossil fuel companies have built up a bubble of assets which will soon lose their value,” says Gilles Dufrasne, policy officer at Carbon Market Watch. “With the COVID-19 pandemic, this time might come much sooner than expected. But low oil prices also harm the competitiveness of renewable energy, and we should not lose sight of the longer-term policy needs to ensure a clean renewable energy future for all, for example through ambitious and socially just carbon pricing policies.”

The not-for-profit think tank Carbon Tracker welcomed the price revision, but said assumptions for future demand still remain too high to comply with the Paris Agreement. According to Carbon Tracker’s head of oil, gas and mining analysis Andrew Grant, companies “still sanction projects that don’t make economic sense in a low carbon world, pay their directors based on increasing fossil fuel production volumes, and have financial statements underpinned by prices that assume sustained high fossil fuel demand.”

Yet, it may be the beginning of a new trend. “We would like to see others pick up the baton, and hope to see more widespread and deeper, more consistent integration of climate constraints throughout company business practices in the coming years.”

Meanwhile, a complaint filed by environmental lawyers of ClientEarth against BP was assessed as “material and substantiated” on Wednesday.

Last December, the charity lodged a complaint alleging BP’s global ‘Keep Advancing’ and ‘Possibilities Everywhere’ ad campaigns misled the public and consisted in fact in greenwashing (since over 96% of BP’s annual spend was on oil and gas). ClientEarth claimed that fossil fuels ads should carry a health warning – just like cigarette and tobacco packets do – to clarify that oil and gas contribute to climate change.

In an unprecedented decision, the UK National Contact Point for the OECD Guidelines for Multinational Enterprises (NCP) found a legitimate interest in the complaint. Nevertheless, it is not proceeding due to BP ending the ads in question.

“Oil and gas companies are spending millions to convince the public of their social license to operate and deflect from their role in rapidly heating the planet,” ClientEarth lawyer Sophie Marjanac said. 

“Today’s decision sets a precedent for people to use the OECD guidelines to hold companies to account for their greenwashing on the basis of consumer interests – including in their advertising. Fossil fuel companies using advertising to mislead the public over their climate impact have been put on notice.”

While Looney will explain their plans for the energy transition in September, the results of BP’s second quarter should be out by August 4.