The coronavirus pandemic and therefore the push to chop carbon emissions. Each has the potential to reshape the industry, but some problems predate those twin crises.
In Shell’s case, investors were already questioning the affordability of a $15 billion annual dividend. For a corporation that also planned to form make massive investments in clean energy. BP faces an identical challenge, plus a couple of other longstanding vulnerabilities.
British thermal units for U.S. gas
The company revised its 2021-2050 price assumptions to $55 a barrel for Brent crude and $2.90 per million British thermal units for U.S. gas. Its previous long-term expectations of $75. For oil and $4 gas were already too high compared. With prices within a previous couple of years, said Allen Good, an equity analyst at Morningstar.
“In this light, the impairment charges are of little surprise,” said Good.
But BP’s assumptions aren’t the very best among its European peers. Norway’s state-controlled Equinor ASA, which has cut its dividend, assumes Brent prices of $80 a barrel for 2030. Within the third quarter of 2019 and are tested. On a yearly basis against the International Energy Agency’s scenarios, the corporate said.
Italy’s Eni SpA features a long-term price of $70, which has remained unchanged “for a previous couple of years,” consistent with the company’s latest as well as in the annual report. France’s Total SA sees crude at $70 within the middle of this decade, falling to $50 by 2050.
BP, however, has also been carrying a heavier debt burden than its rivals. After the writedowns, it’s gearing — the ratio of debt to equity — would increase to 48%, far and away from the very best within the industry, consistent with RBC Capital Markets analyst Biraj Borkhataria.
Every company is grappling with long-term shifts in energy consumption and costs, and therefore the recent announcements by BP and Shell are a real response thereto challenge.