BP Downgrades its Own Stock
BP set an ambitious net-zero emissions target at the start of this year and promised to “reimagine” and “reinvent” a renewable future for itself. The coronavirus-price war one-two punch was a definitive set back, but the firm is stilling coming to terms with losses.
We’re now long after negative oil headlines have faded, but the bad news isn’t over for some. BP broke an awkward message to investors at the start of this week;
“Those assets we thought were worth $17.5 billion, well, they’re actually worth $1 billion. The assets are oil fields, and we thought the oil fields had lots of potentials for us to drill. But we’re not going to develop them now. The world has moved on from hydrocarbons.”
The weakened balance sheet means more debt relative to assets (36%), and that will make debtors nervous, which will, in turn, make investors nervous. BP has 25% more borrowed money on its books than it usually targets.
The stock will go up as that debt gets paid down. It’s the best use of capital. This isn’t a tech unicorn where anything goes, risk matters. However, the stock will tumble if BP’s fat dividend outgoings get cut. The dividend is the main reason shareholders have stuck around despite an incredible two decades of stagnant stock performance.
The stranded fossil fuel assets are only an investor’s highlight. The carbon giant raised its carbon price in a nod to renewables on the way, and predicted a long-term crude price sitting at around $55-per-barrel. The onus is now on competitors to open up about negative oil damages. There are skeletons in the closet, and investors know it!
