BP PLC bolstered its financial reserves as the initial stages of the COVID-19 pandemic caused its profit to plunge and increased its debt.
While earnings were hit hard in the first three months of the year, the worst of the virus-driven crisis is yet to come. The company expects the pandemic to reduce its production and have a material effect on refining in the second quarter.
A measure of its indebtedness rose to the highest in more than eight years, underscoring the financial strain resulting from the oil-market collapse. To boost its financial reserves, BP has taken on a new US$10 billion credit facility and also sold US$7 billion of bonds.
Photo: Reuters
“Our industry has been hit by supply and demand shocks on a scale never seen before,” BP chief executive officer Bernard Looney, who took the firm’s helm earlier this year, said in a statement yesterday.
“We are focusing our efforts on protecting our people, supporting our communities and strengthening our finance,” Looney said.
The earnings figures offer a deeper look at how major energy producers are navigating the economic turmoil imposed by the pandemic.
BP already announced that it would slash costs by 25 percent this year, while Italy’s Eni SpA last week reported a 94 percent slump in first-quarter profit.
The London-based oil and gas giant’s adjusted net income was US$791 million in the period, exceeding the average analyst estimate of US$774 million. That compares with a profit of US$2.36 billion a year earlier.
Gearing — a measure of net debt to equity — was 36.2 percent, remaining above its targeted range of 20 to 30 percent for the sixth consecutive quarter.
Expanding on the weak outlook for the second quarter, BP said that it expects to make an annual payment of about US$1.2 billion relating to the Gulf of Mexico spill settlement.
That would put even more pressure on the balance sheet.
Including the credit line and the bond sales, BP had US$32 billion in liquidity at the end of the first quarter.
BP on Monday said that it would still deliver US$15 billion of divestments, crucial for easing its debt burden, but the timing would be affected by the renegotiation of Hilcorp Energy Co’s purchase of its Alaskan assets.
The company maintained its dividend, having increased it to US$0.105 in the previous quarter.
However, “serious questions remain over its affordability” for BP, analysts at Redburn said in a note.
In a Bloomberg television interview Looney said that the firm could, if necessary, go back to paying a portion of its dividend in new shares, commonly known as a scrip.
“A scrip dividend is one of the many tools in the toolbox, but not one that we choose to use at the moment,” Looney said.
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