BP is cutting its planned capital expenditure this year by around 25% from previous guidance to $12 billion, targeting reductions in US shale activity as well as spending on exploration and major projects, with some output reduction expected, CEO Bernard Looney said Wednesday.
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In a statement on the crisis surrounding the coronavirus and collapsing oil prices, Looney, who took up his post on February 5, warned of a likely impact on the company's first-quarter results, which are published on April 28, including a probable $1-billion financial impairment.
The spending cut is roughly in line with announcements by Shell and other oil and gas majors in response to the coronavirus crisis and tensions over pricing between Russia and Saudi Arabia.
Looney acknowledged uncertainty over how long depressed prices and demand for oil and gas would continue, but said that the pandemic had made no significant impact on BP's operations so far, and the company would bounce back. BP had around $32 billion in cash and undrawn financial facilities at the end of the first quarter, he noted, reiterating a promise not to lay off staff in relation to coronavirus for a three-month period.
"This may be the most brutal environment for oil and gas businesses in decades, but I am confident that we will come through it -- we know what to do and we have done so before. And we also entered this environment in great shape with good operating momentum and financial discipline, strong liquidity and extensive optionality in our portfolio. We are now acting quickly and decisively to further strengthen our financial frame... We will continue to review these actions, and any further actions that may be appropriate," Looney said.
"I am confident we will weather this storm and emerge better able to deliver our ambition: to make BP a net zero [carbon] company by 2050 or sooner."
Looney reiterated BP's previous expectation of lower underlying production in the upstream segment this year, without being specific, although he said first quarter production had been in the range of 2.55 million-2.60 million b/d of oil equivalent, representing a drop of between 4% and 6% from Q4 2019.
Looney also announced a "current reduction" of 70,000 boe/d in output from its US shale unit, known as BPX Energy, likely reflecting an ability to scale back activity there relatively quickly.
In the downstream, he said he expected a $1-billion cut in spending this year.
BP had previously told the market its capital expenditure this year would be in a range of $15 billion-$17 billion this year, compared with actual organic capex of $15.2 billion last year.
It had also predicted some reversal in last year's 4% production increase when it presented its financial results on February 4. Its full-year production last year, excluding BP's stake in Rosneft, was 2.64 million boe/d.
Looney also said he expected to make a $2.5-billion reduction in annual cash costs by the end of next year compared with 2019 thanks to digitization and "integration" across the group, a likely reference to the reorganization he announced in February, which entails integrating the upstream and downstream segments into one "production and operations" unit.