From Breakingviews: BP boss Bernard Looney is demonstrating the ups and downs of transitioning away from oil, writes gfhay
BP Chief Executive Bernard Looney gives a speech in central London, Britain, February 12, 2020. REUTERS/Toby Melville
In absolute terms, oil prices that have climbed to $73 a barrel are obviously helpful for Looney. In the second quarter they enabled him to cut net debt to 26% of total capital, maintain $13 billion of annual spending on renewables and hydrocarbon projects, and give investors a 4% hike to a dividend per share they had assumed would be fixed at 5.25 cents a quarter. BP shares duly rose by 3.5%.
The unfortunate thing for Looney is that oil investors seem to focus on companies’ ability to pay dividends now, rather than their less-concrete plans to develop a business beyond fossil fuels. Prior to today’s hike, BP was pledging to pay about $4 billion in dividends annually. Dividing that by its 7% cost of equity minus the 2% Morgan Stanley thinks dividends can grow in perpetuity gives $80 billion, in line with the UK group’s current market capitalisation.
- BP said it has increased its price forecast for benchmark Brent crude oil to 2030 to reflect expected supply constraints, while also lowering its longer-term price forecast because it expects an acceleration in the transition to renewable energy. As a result, the company increased the pre-tax value of its assets by $3 billion. That comes after BP wrote down over $17 billion last year after lowering its price expectations.
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