It’s been a tough few months for BP (LSE: BP). Oversupply in the oil market was exacerbated when coronavirus hit. Crude prices plummeted, and as it stands, the market is still unsure what the post-lockdown world will look like.
That’s why, this month, the company was forced to write down about $17.5bn from its oil and gas assets. Specifically, it reduced its outlook on crude oil prices in the wake of coronavirus. Despite this, however, the BP share price has managed to hold on fairly well.
Job cuts, debt and dividends
The week before its asset write-down, BP announced it would be cutting 10,000 jobs – about 15% of its workforce – by the end of this year. Most of this number will come from office-based staff, “protecting the front line of the company”.
The share price was actually higher on this news for a few days. Cost-cutting efforts being seen by investors as a sensible move. Interestingly too, BP is still maintaining its dividend.
Personally I agree with my fellow Fool Edward Sheldon, I expect at some point in the future BP will be forced to cut its dividend. It’s hard to justify cutting staff while maintaining investor payouts.
I suspect BP is simply waiting for a more opportune time. In a fearful market, it makes sense to not give investors any extra reasons to go running for the door. I suspect when things calm down towards the latter half of 2020, it will be reviewing its payout.
Interestingly, just days after the asset write-down, BP announced it would be raising $12bn through the issuance of hybrid bonds. The main aim of this is to strengthen BP’s balance sheet — the firm having some of the highest levels of debt in the industry.
BP oil or BP green energy?
With concern for the environment being stronger than ever, oil majors having been making greater efforts to go green. On the image front, oil companies need to be seen as trying to move towards greener energy.
From a practical perspective, if oil runs out or becomes too expensive to extract, renewable energy sources could be a massive profit maker. Companies like BP and Royal Dutch Shell have known the writing was on the wall for a while.
Accordingly, both companies have been making greater efforts in the green market. This kind of adaptability has been a selling point for me as an investor. With this latest asset write-down, BP has suggested the expected fall in demand for oil will bring these efforts forward.
I think that with its cost-cutting efforts, investments in a greener economy and an understanding investor base if its reduces tis dividend, the BP share price may be able to see better times ahead.
