BP cuts spending to deal with collapsing oil prices

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BP must cut capital spending by 25% this year as it seeks to strengthen its finances and maintain shareholder payments in the face of the collapse in oil prices triggered by the coronavirus epidemic.

The British energy group said it plans to spend $ 12 billion this year, down from initial expectations of $ 15 billion, which would likely cause oil production to drop.

Capital spending reductions include $ 1 billion in the US shale BPX sector.

“This is perhaps the most brutal environment for oil and gas companies in decades,” said Bernard Looney, chief executive, on Wednesday. “We are in action to protect the financial health of BP.”

The company’s shares hit a 24-year low last month. But so far, it has not cut its dividend and, like other large energy companies, it is pulling on a series of levers to protect shareholder payments.

The company is postponing certain exploration and evaluation activities and aims to cut costs by $ 2.5 billion by the end of next year from 2019 levels.

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“We are now acting quickly and decisively to further strengthen our financial framework in response to the currently volatile and extremely difficult market conditions,” said Mr. Looney.

Brent crude, which was trading at around $ 70 a barrel in January, fell to around $ 25 a barrel, its lowest level since 2002 this week. A drop in demand for crude oil coincides with an increase in supplies led by Saudi Arabia.

BP shares fell 33% in the same period.

In February, before large-scale closings and travel bans to limit the spread of the coronavirus, BP was confident that it could generate more cash. He had completed a $ 1.5 billion share repurchase program, announced new asset disposal targets and his debt level was dropping, which led the company to increase its dividend by more than 2%. at 10.50 cents.

However, Stuart Joyner of Redburn said: “At current crude oil prices, we still see a clear and current risk of lower oil dividends, including from BP. “

Looney said BP remains “committed to sustainably increasing free cash flow and distributions to our shareholders.”

BP said its plan to raise $ 15 billion by mid-2021 from a large divestment program, which had been launched to strengthen its balance sheet after a successful deal for the miner’s US shale assets BHP in 2018 was still on the right track.

However, he warned that some deals may take longer than expected to close, saying that earlier predictions that he would generate $ 10 billion in revenue by the end of this year, including the sale of 5.6 billion dollars of BP’s Alaska operations at Hilcorp could be missed.

When it releases its first quarter results on April 28, BP is expected to levy an approximately $ 1 billion non-cash and non-operating charge to reflect new oil price assumptions.

Last week, in an effort to reassure staff, Looney said BP will not cut jobs in the next three months.

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