BP Plc Aims To Reduce Spending Following A Collapse In Oil Prices

On 13^th March 2020, the Chief Executive officer of BP Plc (LON: BP.), Bernard Looney, stated that the company is searching for options to cut down on operational spending following the huge downtrend in oil prices, which has pushed its shares to their lowest level in the last twenty-four years. However, the stock of the company closed at GBX 276.30, an increase of 0.47 per cent or GBX 1.30 on 13th March 2020. The collapse of supply cut agreement among more significant oil-producing countries and novel coronavirus outbreak reinforces BP’s objective to curtail its gas and oil business.

Bernard Looney commented that the company’s goal is to completely restructure its operations amidst the expenditure of around $15 billion on its gas and oil operations in the year 2019. As per Bernard Looney’s statement, to safeguard the company’s health, it is essential to decrease the capital and operational spending. However, the company has weathered these kinds of circumstances in the past.

Due to the effects of novel coronavirus, the staff of the BP Plc has been advised to work from their residences except for a few critical operations. The company has also restricted travelling of staff on official purposes and declined against holding any large meetings.

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1. - Overview of BP Plc

BP Plc is an international energy business. The company conducts its operations in five continents, i.e. North & South America, Australia, Asia, Europe and Africa. As per the company information, as of 31st December 2018, the total number of employees is around 73,000, and the total number of countries in which operations are ongoing is 78. From rigs to retail and from the deep sea to the desert, the company provides energy services and products throughout the globe. The company delivers energy for light and heat, fuel for transport, lubricants for the engine, power for industry and petrochemicals products used to manufacture items like packaging, clothes and paints. It is listed on the London Stock Exchange, and its stock is a component of the FTSE 100 index.

1. - News Updates

On 12th February 2020, the company announced its target to become Net Zero company by the year 2050. It will also support the world with the same objective. The five landmarks to achieve this are as follows:

• The first aim of the company is to become net Zero throughout BP’s operations by the year-end 2050 or maybe earlier on an absolute basis.
• The company’s second aim is to reduce Fifty per cent in the carbon intensity of its products by the year 2050 or maybe earlier.
• The company next objective is Net-zero on carbon emission in its gas and oil production by the year 2050 or faster on an absolute basis.
• Boost the percentage of capital spending into other than oil and gas businesses.
• Establish methane measurement by the year 2023 at the entire company’s leading gas and oil processing locations and reduce methane intensity of operations by 50 per cent.

The company also announced five pledges to help the world to transition to net-zero carbon emissions, which are as follows:

• The company will establish new targets for relationships with trade associations.
• The company will concentrate on additional active support for policies with regards to net-zero, consisting of carbon pricing.
• Additionally, the company will provide an incentive to the company’s staff to deliver objectives and motivate them to extend assistance for achieving net-zero.
• The company’s objective is to be established itself as a leader in reporting transparency, involving taking up the suggestions of the TCFD.
• The company will launch a new team to help nations, large enterprises and cities to decarbonize.

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1. – Financial Performance

On 04^th February 2020, the company announced fourth-quarter and full-year 2019 report for the year ended 31^st December 2019.

Due to impact of the weaker business environment, the underlying replacement cost profit reduced to $2.6 billion and $10.0 billion respectively for the fourth quarter 2019 and annually in the year 2019, compared to $3.5 billion and $12.7 billion in the corresponding period of the prior year.

The Net debt decreased by $1.1 billion in the fourth quarter of the year 2019 with gearing ratio at 31.1 per cent, down from 31.7 per cent at the end of the previous quarter of the year 2019.

Divestments and other disposals amounted to $9.4 billion, which were announced since the beginning of the year 2019. Due to that, the company is ahead of its schedule to complete its objective of $10 billion in proceeds by the year-end 2020. BP Plc anticipates declaring an additional $5 billion of agreed disposals by the mid-year 2021.

The gas and oil production was reported at an average of 3.8 million barrels of oil equivalent a day in the year 2019, which was 2.7 per cent higher than in the year 2018. The profit (loss) for the period decreased significantly to $4,190 million as compared to $9,578 million in the year 2018. The profit was reported at $18 million in 4Q of 2019.

The basic earnings per ordinary share decreased to 19.84 cents versus 46.98 cents in the year 2018. The diluted per ordinary share decreased to 19.73 cents versus 46.67 cents in the year 2018. The company announced a dividend of 10.5 cents per share for the fourth quarter of 2019, a growth of 2.4 per cent on the corresponding prior period.

1. – Share price Performance

 (Source: Thomson Reuters)

On 16^th March 2020, at around 08:50 AM (GMT), by the time of writing this report, the stock of BP Plc was trading at a price of GBX 257.76 per share on the London Stock Exchange, a decrease in the value of around 6.71 per cent or GBX 18.54 per share, as opposed to the closing price of the stock on the previous trading day, which has been reported to be at GBX 276.30 per share.

The share price of BP Plc recorded at GBX 583.41 as on 23^rd April 2019 was its 1-year peak price, whereas the share price recorded at GBX 249.60 as on 16^th March 2020 was the 1-year low share price. The current share price was lower by 55.81 per cent from the 1-year high price, whereas the current share price was higher by 3.27 per cent from the 1-year low price.

The beta of the company’s stock has been reported at a value of 1.49, which shows that movement of the share price is of higher volatility against the movement in the comparative benchmark index.

The annual dividend of the company was reported at GBX 31.40 per share, and the annual dividend yield was reported to be 11.37 per cent at the time of writing.

At the time of writing, the company’s market capitalization was reported at GBP 55.97 billion with respects to the stock’s current market price. The free float and outstanding shares of BP Plc stood at 20.10 billion and 20.26 billion, respectively.