Shares in BP have dropped 3% this morning after the oil giant reported its first quarterly loss in a decade, as the pandemic continued to hit demand for energy.
There are two ways of looking at full year results from BP. On the one hand the pandemic’s hit to oil demand contributed to the kind of loss that the market just can’t ignore.
“However, the substantial loss largely reflected non-cash write downs to the value of its assets and there were some signs of tangible progress with its longer-term strategy,” said AJ Bell’s Russ Mould.
“The divestment of oil and gas fields has helped reduce net debt, albeit still at quite high levels, and this will help with the transition away from fossil fuels as BP looks to its 2050 net zero carbon target.
“However, the company is stuck in a conundrum as oil and gas production pays the bills and, crucially, the dividend. Having already slashed the payout significantly in August 2020, shareholders would not take kindly to another dividend cut in the near-term.
“And yet production is at a four-year low, the company is not replacing the resources it is bringing to the surface and 2021 is off to a poor start.
“The refining business which has typically provided something of a hedge to lower oil prices, with cheaper crude boosting margins on refined products, has also suffered due to the broad-based nature of the Covid-led demand decline.
“Cash flow from its traditional assets will also be required to invest in areas like alternative energy, where BP will also face the problem of increasing asset prices and competition from other participants in the sector.”