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BP hikes asset sale target to $15B as debt, gearing remain high

London-based BP PLC altered its divestment plan, upping its asset disposal target by $5 billion to $15 billion and extending the program through the middle of 2021, executives confirmed during the company's fourth-quarter 2019 earnings call.

Since 2019, BP has outlined $9.4 billion in asset sales, keeping the company ahead of schedule in meeting its $10 billion target before the end of this year.

But the company's debt and gearing — a measurement of a company's financial leverage remain high as BP continues to work to repair its balance sheet, digging itself out from the 2010 oil spill at the Deepwater Horizon project in the Gulf of Mexico.

BP trimmed its debt by $1.1 billion in the fourth quarter of 2019, with gearing pegged at 31.1%, down from 31.7% in the previous quarter. However, at the end of 2019, BP's net debt totaled $45.4 billion, compared to $43.5 billion at the conclusion of 2018. At the close of 2019, BP's gearing was 31.1%, coming in above the top end of the company's range of 20% to 30%.

Gearing is expected to work its way below 30% this year as BP continues to shed noncore assets, with proceeds used to pay down debt, according to analysts and BP executives.

"As further proceeds are received, we expect net debt to continue to decline and gearing to move towards the middle of the range of 20% to 30% through this year, assuming recent average oil prices," BP CFO Brian Gilvary said during the company's Feb. 4 earnings call.

According to Jefferies analyst Jason Gammel, only $2.8 billion of the $9.4 billion from asset sales is reflected on BP's balance sheet. "The remaining $6.6 billion of transactions (Alaska, U.S. Lower 48 natural gas) should be sufficient to bring gearing to 27% by 3Q20," Gammel wrote in a Feb. 5 research note. "The company intends to divest an incremental $5 billion by mid-2021, and the $5.6 billion of proceeds from unannounced transactions would lower gearing to 24% at that time."

In 2018, BP kicked off the asset sale program to help fund a $10.5 billion purchase of U.S. oil and gas shale holdings from BHP Group. BP sold off most of its Permian Basin shale assets in 2010 to help defray the costs of damages related to the Deepwater Horizon explosion and spill that same year.

The change to the program comes as Bernard Looney, former head of the company's upstream business, takes the reins from retiring CEO Bob Dudley.

On Feb. 12, Looney will lay out his goals for the company. Looney could be looking to make changes at BP that would include a large-scale restructuring and a stricter emissions reduction target, Reuters reported in January.

Looney and other BP executives are exploring the idea of merging a portion of BP's upstream unit with its refining and chemical operations. Additionally, Looney reportedly wants BP to adopt tougher emissions reduction targets that would include scope 3 emissions, which are those that occur throughout a company's value chain, the article said.

Investors have been pushing for large energy companies to take more serious action on climate change by cutting scope 3 emissions.

Analysts had said an increase in BP's quarterly dividend was unlikely to occur before the CEO transition, but the company declared a dividend of 10.5 cents per ordinary share for the fourth quarter, up 2.4% from the prior quarter, even as profit attributable to shareholders fell a massive 97.5% year over year to $19 million.

The last time the major increased its dividend was in the second quarter of 2018, by 2.5% to 10.25 cents per share.