Oil price defined tough year for BP and Shell

PA

London’s two biggest oil companies are set to report their results for a year which has included a giant price war between Saudi Arabia, a drop in oil prices due to Covid and massive write-offs.

In the beginning of 2020 all eyes were on the Organisation of the Petroleum Exporting Countries (Opec) whose agreement with Russia to artificially reduce supply and therefore push up oil prices came to a close.

The two parties could not come up with a new agreement, and instead Russia and Saudi Arabia kicked off a production war, pushing down global prices.

Brent crude, the international standard, had started the year on around 61 dollars per barrel, but dropped to 55 before January was out.

But that was nothing compared to the hit that Covid brought. Within another two months the price of Brent had hit less than 39 dollars, and it even briefly dipped below 19 dollars in April.

This in part forced Shell and BP, who report full-year results next week, to reduce the expected price they will get for the oil they had already found, and write down the value of their assets by billions of dollars.

BP wrote off around 17.5 billion dollars in June and Shell wrote down 16.8 billion dollars, and both slashed dividends.

“Like its peers, Royal Dutch Shell has already made significant asset write-downs, reported huge losses in previous quarters and cut its dividend by two thirds,” said analysts at the Share Centre.

“At the start of the new year, investors will be on the lookout for further rationalisation programmes and indications on the crucial dividend prospects.

“Given the oil price recovery and long-term global economic challenges, we may see a mixed outlook for the year from management.”

For BP it has been a year since boss Bernard Looney took over the top job, promising to steer the ship on a new course.

The over 100-year-old company plans to reduce its emissions to a level low enough where they can all be offset by 2050.

However, this requires major change throughout the business. Hundreds of employees have already left the company’s oil and gas hunting arm as the company scaled back how much time it spent looking for new resources, Reuters reported earlier this month.

After an initial pledge in February as he stepped into the role, Mr Looney laid out more detail in August, winning cautious optimism from sometime critics.

He said that oil and gas production would be cut by 40% and investment in low-carbon projects increase tenfold to five billion dollars (£3.8 billion) every year by 2030.

The Share Centre said: “Given the oil price recovery, combined with a difficult long-term global economic scenario, we may see a mixed outlook for the year from management.

“Meanwhile, the crisis has brought environmental issues more to the fore, so we should see more commentary on plans to replace fossil fuels with renewables.”

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