BP Plc slashed its dividend for the first time in a decade and set out new targets to accelerate its shift to greener energy after the coronavirus pandemic upended the oil business.
The u-turn in its dividend policy was expected after European peer Royal Dutch Shell Plc slashed its own payout in April. Big Oil’s generous dividends have long been its main attraction to shareholders, and the move — hastened by the virus but made inevitable by the transition to cleaner energy — redraws the company’s investment profile.
BP paired the payout news with more details for investors of its net-zero strategy — bringing forward announcements expected in September. It’s targeting a radical 40% decline in hydrocarbon production, a 10-fold increase in low-carbon investment and a leap in renewable-power capacity to around 50 gigawatts by 2030. It won’t explore for oil in any new countries.
“Whatever the devils that will no doubt emerge in the detail, this is a pretty big change from BP,” Greenpeace UK’s Chief Scientist Doug Parr tweeted in an unusual show of support.
BP shares surged as much as 8.3% on Tuesday, trading up 7.4% at 301.7 pence in London. That’s the biggest gain on the Stoxx Europe 600 Oil & Gas index, suggesting that the dividend cut was already priced in.
Chief Executive Officer Bernard Looney is taking the opportunity presented by the virus to speed up the changes he needs to make to fulfill his vision of a low-carbon future. But the company went into the crisis with high debt and hefty payouts — it even increased the dividend for the fourth quarter — meaning more pain now. BP reported an adjusted net loss of $6.68 billion for the second quarter, following a $2.81 billion profit a year earlier. It was a narrower loss than expected as BP said its trading division performed strongly. It cut its dividend to 5.25 cents a share and scrapped its progressive payout policy.
“It’s very simple,” Looney said about the 50% dividend cut. “The change is rooted in strategy, deeply rooted in strategy, and amplified by Covid.”
Net debt fell 20% from the previous quarter to $40.9 billion, while gearing — the ratio of debt to equity — dropped to 33.1% from 36.2%. Despite the decline, the level remains well above BP’s comfort range of 20%-30%.