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BP Slashes Dividend As Covid-19 Propels Q2 Loss; Shares Rise 8%

support@smarteranalyst.com (Ben Mahaney)

BP PLC cut its dividend in half for the first time since 2010 after posting a $16.8 billion loss in the second quarter, as the energy giant expects weaker energy demand for a sustained period due to the impact of the coronavirus pandemic.

Shares are rising 8% to $23.86 in Tuesday’s pre-market trading. BP (BP) will slash its dividend to 5.25 cents per share from 10.5 cents per share for the previous quarter. The dividend decision is aligned with BP’s new distribution policy, which seeks to “reset a resilient dividend” of 5.25 cents per share per quarter and return at least 60% of surplus cash as share buybacks.

Furthermore, the oil giant announced plans to ramp up its annual low-carbon investment by 2030 to $5 billion and increase its renewable power generation capacity to 50 gigawatts. Over the same period, BP’s oil and gas production is expected to be reduced by at least one million barrels of oil equivalent a day, or 40%, compared with 2019 levels.

BP posted a $16.8 billion loss in the second quarter compared with a profit of $1.8 billion for the same period a year ago, including a net post-tax charge of $10.9 billion for non-operating items. In the reported quarter, underlying replacement losses amounted to $6.68 billion, compared with a profit of $2.81 billion in the year-ago period. BP said that the results mainly reflect the impact of writing down certain exploration intangible carrying values, and lower liquids and gas realizations.

“These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent bp. In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact,” said BP CEO Bernard Looney. “Beneath these, however, our performance remained resilient, with good cashflow and – most importantly – safe and reliable operations.”

In forward-looking statements, BP said that the outlook for commodity prices and product demand continues to be challenging and uncertain. In addition, the risk of the pandemic having an enduring impact on the global economy, boosts the potential for weaker energy demand for a sustained period.

As of the end of June, BP’s net debt amounted to $40.9 billion, compared with $46.5 billion a year ago. The company had around $47 billion of liquidity, including cash and undrawn revolving credit facilities, at quarter end.

Shares in BP have lost 41% of their value this year as the coronavirus pandemic pushed oil prices to multi-year lows leading to declines in oil and gas output.

Ahead of the earnings, Jefferies analyst Jason Gammel raised the stock to Buy from Hold, saying that there was a "good chance" that BP will cut its dividend payout.

The analyst noted that this is "the first time our team has ever upgraded a stock to Buy when the risk of an imminent dividend cut was possible, but we believe a cut of 65% is already priced into the stock".

Overall, Wall Street analysts share Gammel’s bullish outlook. The stock scores an unanimous 5 Buy ratings which add up to a Strong Buy consensus. The $29.48 average price target implies 33% upside potential in the shares over the coming 12 months. (See BP stock analysis on TipRanks).

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