British oil giant BP slashed its long-term estimates on oil and gas prices. BP’s assumptions for Brent crude oil prices were cut to $55/barrel for 2021 through 2025, while its assumptions for Henry Hub gas price was reduced to $2.90/MMBtu. Both assumptions were cut by about 30%. This outlook is the lowest among European top energy producers, Barclays research said.
The company also raised its estimates on the price it will need to pay governments for carbon dioxide emission from $40/ton of CO2 to $100/ton in 2030. Lower price outlook and higher estimated carbon tax result in estimated write-offs and non-cash impairment charges of about $13 billion to $17.5 billion after-tax, BP said.
RBC Capital Markets noted that the big impairments might affect BP’s asset value and equity to debt ratio. The banks said BP’s asset value could fall by around 10% in the second quarter, while its equity to debt ratio, or gearing could stand at 48% in the same quarter. At such levels, BP will likely reduce its dividend, RBC added.
Earlier this month, BP also announced a plan to reduce the workforce by 15% as a response to the COVID-19 pandemic. BP also said that the health crisis had accelerated its drive to increase its focus on renewable energy while reducing exposure on fossil fuels.
