In the lead up to the oil multinational’s Q3 results release, the BP share price has hit a 26-year low. The 200p mark is the lowest BP share price since 1994, and comes amid investor fears for the future of the oil industry, as well as the ongoing Covid-19 pandemic.
BP share price hits record lows, dividend halved
Having announced almost $20bn in write-downs this year, BP finally succumbed to the inevitable. In August, the multinational cut its dividend from 10.5c to 5.25c a share, as it outlined its new strategy to restructure the business, against a backdrop of slowing demand and a shift towards renewable energy. While responding to a shareholder, CEO Bernard Looney attributed BP's share price crash to numerous factors, while saying that the current climate “makes a robust case for change” across the sector.
Investor reaction to these new plans has been less than enthusiastic, with the BP share price more than halving since sitting at 480p at the start of the year. As a result of the recent fall in its share price, the company now finds itself valued at £40.5bn as it competes in an ever-changing world.
While this is disappointing, the process of changing a company with BP’s size and mindset was always going to be akin to turning around a supertanker.
Disposals to assuage net debt?
The reality was that doing nothing was not an option, as net debt approached the $50bn mark. The company has finally taken steps to reduce this in the form of disposals, selling its Alaska business, Hilcorp, for $5.6bn and its petrochemicals business to Ineos for $5bn. It also expects to complete the sale of its assets in the North Sea to Premier Oil by the end of this quarter, as well as completing the sale of its interest in the Trans-Alaska pipeline.
BP’s commitment to a tenfold increase in low carbon investment by 2030 sounds laudable, but it’s still small change when compared to how much BP spent in acquiring BHP’s shale assets in 2018, and the fact that this year’s capex budget is expected to be in the region of $12bn. Another problem facing the oil giants is that of a weak industry refining environment, with Q2 the weakest in 15 years, suggesting that Q3 is unlikely to be much better.
There were some bright spots in BP’s most recent trading update, namely a strong performance from its trading division which helped bring the Q2 loss down to $6.7bn. The company will hope that this can be repeated in Q3.
A sector-wide issue
Despite the battering that the BP share price has had, a crumb of comfort can be taken from the fact that the company is by no means an outlier. The oil industry on the whole has experienced huge losses as the Covid-19 pandemic struck across the globe, with rivals Exxon Mobil losing £150bn of market value in the same period
BP’s Q3 results are revealed on Tuesday at 7am. Will the latest numbers provide some respite for the falling BP share price?