BP asset write-down 'is significant for sector'

Speaking after BP announced it was writing down as much as $17.5 billion when it reports its second quarter results, Luke Parker, vice president, corporate analysis, said: “The impairment shouldn’t come as a big surprise, but the implications – near-term and long-term – are significant.”

“In the near-term, the impact of a US$17.5 billion write-down on shareholders equity would push BP’s gearing ratio to 45% (including lease liabilities, 41% excluding). A US$13 billion write-down would push these figures to 44% and 40% respectively. This is uncomfortably high.

“Greater urgency to pay down debt will put further pressure on the dividend. Of course, under BP’s latest price assumptions, cash generation will be less than previously anticipated.

“In the longer term, this is about BP’s strategic shift away from oil and gas. While that will be a multi-decade affair, BP is already getting to grips with the idea that its upstream assets are worth less than it believed as recently as six months ago. Indeed, some of them are worth nothing.

“Big picture, we see this as another step in the re-rating of oil and gas, and the journey from Big Oil to Big Energy. BP is working through the detail of the ‘reimagine’ strategy that it unveiled in February. That will be presented in September, and will provide a much clearer picture of BP’s plans for capital allocation and cashflow generation as it makes the transition to net-zero.”