BP reported a 66 per cent drop in earnings and a rise in debt in the first quarter as the collapse in oil demand and crude prices triggered by the coronavirus crisis took their toll on its finances.
The UK energy major said consumption of refined products had fallen dramatically in March, when governments worldwide imposed severe restrictions to curb the pandemic.
But it maintained its dividend of 10.50 cents a share for the quarter as the company, like many of its peers, pulls on an array of financial levers to protect shareholder payouts.
In the three months to March 31, underlying replacement cost profits — BP’s definition of net income and the measure tracked most closely by analysts — were $791m against almost $2.4bn in the same period last year.
While it beat consensus estimates at $710m, the company’s shares fell nearly 3 per cent in early trading on Tuesday.
BP, which at the start of the year was confident it could generate more cash, has been thrown into crisis just as new chief executive Bernard Looney has taken the helm.
“The environment is brutal,” Mr Looney told the Financial Times on Tuesday. He said BP was bolstering its finances and boosting liquidity to lower its break-even price to less than $35 a barrel, from $56 a barrel last year.
Lockdowns and travel bans have triggered a collapse in oil demand, coinciding with a supply glut and causing an unprecedented price crash, forcing the entire sector into cash conservation mode.
On Tuesday morning Brent crude slid 4.3 per cent to $19 per barrel, having dropped below $20 last week for the first time in almost two decades.
BP was also hit by weaker earnings from its oil trading business, as well as poorer performance from its stake in Russia’s Rosneft. Cash flow slid to $1bn in the quarter versus $5.3bn last year.
It said an “exceptional level of uncertainty” remained over short-term prices and demand for refined products.
Mr Looney said that while BP did not plan on making any redundancies for three months, “there will be job cuts globally, towards the end of this year”, with the pandemic accelerating a plan to drive down costs and reorganise the business under the new chief executive.
Gearing — which BP defines as net debt divided by the sum of net debt plus equity — rose to more than 36 per cent in the first quarter, one of the highest in the sector and far above its 20-30 per cent target range.
Biraj Borkhataria, of RBC Capital Markets, said he expected gearing to rise further as lower production, weaker refining margins and persistently low oil prices compounded cash flow weakness.
He added that “the key question at this point is how far BP is willing to push the balance sheet in order to protect its dividend”.
BP has already announced it will cut capital spending to $12bn from initial expectations for $15bn. It is also deferring some exploration and appraisal activities and aims to cut costs by $2.5bn by the end of next year compared with 2019 levels. It has secured new credit lines and tapped the bond market for nearly $7bn.
Mr Looney said BP would “review” the dividend decision in the second quarter.
Despite the company’s share price falling to a 24-year low last month, Mr Looney rejected suggestions BP would waver from its net zero emissions pledge.
“I don’t see the climate debate going away . . .[it] may be enhanced by what we’re seeing,” he said.
He added that new oil demand patterns could emerge out of the crisis as more people work remotely and travel differently. “There is a real question over whether consumers consume less,” he said.
BP said plans to raise $15bn by mid-2021 from a huge divestment programme remained on track.
BP is the first oil “supermajor” to report earnings, with those of Royal Dutch Shell, ExxonMobil, Chevron and Total all due in the coming days.
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