What's going on?
BP might look big and tough, but it’s just as frightened as the rest of us: the British oil company admitted on Monday it could face asset “write-downs” worth $17.5 billion this quarter.
What does this mean?
Accountants regularly assess what a company’s assets are worth, and if they and the company’s bosses decide one of those assets isn’t actually as valuable as they thought, they’ll write down its value – effectively lowering what it’s worth on paper.
BP’s upcoming write-down coincides with the company’s lowering of its oil and gas price forecasts: the giant now thinks the average price of a barrel of oil will be $55 from next year through to 2050 – more than 25% below its previous prediction. And if BP thinks oil’s worth less, the oil major’s oil fields must be too, leading to the write-down it’ll announce in its second-quarter update.
Why should I care?
For markets: The waiting game.
Things have gone from bad to worse for BP and its investors: the company revealed a 70% drop in its first-quarter profit in April, and announced 10,000 job cuts last week. And while we’ll have to wait till August to see just how much damage this write-down has done to BP’s accounts, some investors weren’t keen to wait around: they sold off the oil major’s stock on Monday, and it fell 3%.
The bigger picture: Green is the new black.
One reason BP has lowered its oil price forecast is that it believes the coronavirus pandemic will actually accelerate the world’s transition to a lower-carbon economy. And BP wants to play its part, with an aim of net-zero carbon emissions by 2050. A Goldman Sachs report last year argued big oil companies would be at the center of the climate revolution – and with Shell, Repsol, and Total all on the front foot when it comes to environmental concerns, it might well be right.