BP is to cut £14 billion (US$17.5 billion) from the value of its assets as the COVID-19 pandemic accelerates net zero transition.
Combined with the economic impact of the pandemic, the oil and gas major has now revised its long-term price assumptions. It has adjusted them to US$55/bbl for Brent and US$2.90 per mmBtu for Henry Hub gas, slashing the value of its products.
Along with the revised long-term price assumptions used for investment appraisal, BP has adjusted its carbon price for the period going forwards to US$100/teCO2 in 2030.
The changes in value has led the company to review some of its intended developments, with the possibility that proposed exploration projects will not come to fruition.
BP announced earlier this month that as a result of the economic impact of COVID-19, it was cutting 10,000 jobs. This formed part of a restructuring – announced earlier this year but accelerated by the pandemic – that looks to streamline the company, making it more capable of achieving its net zero ambitions.
This goal was announced by CEO Bernard Looney in February, who said he would “fundamentally re-organise” the business, establishing a new low carbon power unit and doubling down on clean investments in a bid to become net zero by 2050.
“Since then we have been in action, developing our strategy to become a more diversified, resilient and lower carbon company,” Looney added yesterday upon announcing BP’s reduced asset value. “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 was one of a host of oil and gas majors to commit to decarbonisation at the beginning of 2020, with Shell and Total also announcing their ambitions for net zero operations.
While decarbonisation is a laudable goal, BP came in for criticism due to the lack of detail within its proposal, and its plans to continue exploration activity.
In lowering its asset value, BP stated that it has a “growing expectation” that following the pandemic the pace of the transition to a lower carbon economy and energy system will accelerate, as “countries seek to ‘build back better’ so that their economies will be more resilient in the future.”