BP draws investors’ attention over lowering carbon footprint

BP draws investors’ attention over lowering carbon footprint

Summary

  • BP (LON: ) had announced a " Net Zero" plan to reduce its carbon footprint to zero by the year 2050.
  • The company currently emits nearly 400 million tons of carbon dioxide equivalent per year, mostly from its exploration and drilling division.
  • To move away from these emissions, the company plans to move away from oil and gas energy assets and incorporate more renewable assets in its asset portfolio.
  • This means that BP could be delivering much lower returns than in the past.
  • It has not gone down well with investors, leading to the stocks being dragged down to a more than two decades’ low value.

The shares of BP Plc, the largest producers of oil and gas in the United Kingdom continue to fall unabated. Ever since the CEO of the company Bernard Looney announced his " Net Zero" plans, investors had continually been pushing down the share value.

The shares of the company had touched a 25 years low value in the month of September 2020 itself. After that, they have fallen even further.  

The situation was exacerbated by a report from the International Energy Agency (IEA) which stated that the global oil producers could have to wait for their businesses to become viable till crude oil prices rise above $50 per barrel.

The report, published on 14 October 2020, also explained that the resurgence of the pandemic in several parts of the world, especially western Europe, is already weighing on global oil prices which could lead to a prolonged state of sluggish business activity.

The current state of affairs in the oil markets and the company's own financial position warrant that it desists from taking any steps on its “Net Zero” plan on a near term basis, according to few market experts.

 

BP’s falling revenue

The revenues of BP have taken a plunge after the outbreak of the pandemic. The company reported a $16.8 billion loss for its second quarterly period (Q2 2020), which pushed the company into a precarious situation, and it had to significantly push up its debt load.

Over and above that, the company also chose these turbulent times to roll out its " Net Zero" plan.

This plan could progressively replace oil with renewable energy resources, which will be a significant amount of investment in technology development as well as resource creation.

The company's plan is in keeping with the UK’S commitment to completely decarbonize itself by the year 2050. Several other oil & gas and utility companies in the UK and the European Union have also announced similar plans.

However, the concern is that renewable energy is a relatively lower margin business. Further, the technology has not developed enough to make bulk harvesting of renewable energy a possibility. Hence, the investors seem to be concerned about this transition plan.

 

The financials

The company came out with its half-yearly financial results for the period ending on 30 June 2020.

During H1 2020, the company reported total revenue and other income of $90.73 billion (H1 2019: $141.154 billion).

The loss before interest and taxation of the company for the first half of 2020 stood at $24.547 billion (H1 2019: profit before interest and taxation of $9.68 billion).

The basic loss per share of the company for the period stood at US 105.02 cents (H1 2019: earnings per share of US 23.47 cents). 

The Share price performance of BP on the LSE over the past six months

Source- Thomson Reuters

The shares of the company have not been performing well on the London stock exchange over the past six months. Since the rolling out of the “Net Zero” programme by CEO Bernard Looney, no price rise has been seen, in fact the stock has been on a continuous downward trend.

On 15 October 2020 the shares of the company closed at GBX 206.65 per share losing over 3 per cent over the previous day's close.

BP Plc (LON: BP.) is the United Kingdom-based multinational Oil and gas company active in all three upstream, midstream and downstream in the industry, as well as new energy verticals like solar power, wind power and biofuels. 

Outlook

BP has a comprehensive plan to further on its commitment on the environment front, called the Launchpad initiative. The company has set out to raise five energy companies each worth $1 billion by 2025, which would accentuate on the new and more energy-efficient technologies while cutting on carbon emissions.

The initiative will run parallel to BP's venture capital unit, which provides funds to startups with innovative disruptive technologies that work on renewable and energy efficiency technology platforms.

The difference between the two being that the venture capital unit only provides seed capital while taking only a minority stake in the new companies while under the Launchpad platform BP will own a majority stake in these five companies and will hand-hold them and nurture them till they become $1 billion turnover companies.

 

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