A BP petrol and diesel filling station in Hildenborough, England, on June 15, 2020.
BEN STANSALL | AFP | Getty Images
The CEO of oil and gas giant BP told CNBC on Wednesday that its decision to “reset” its dividend to 5.25 cents a share was “deeply rooted in strategy.”
The newly announced dividend represents a 50% reduction compared to the 10.50 cents per share in the first quarter of 2020 and comes as the U.K.-based firm looks to ramp up its investment in renewables whilst cutting hydrocarbon generation by 40% through to 2030.
Among other things, BP, which reported a significant loss for the second quarter on Tuesday, wants “investment in low carbon energy” to hit approximately $5 billion per year by the end of the decade. The company is also aiming for its “renewable generating capacity” to reach roughly 50 gigawatts over the same time frame, up from 2.5 gigawatts in 2019.
Bernard Looney, who was speaking to CNBC’s “Squawk Box Europe” on Wednesday, said the business wanted to “transform ourselves into becoming an integrated energy company.” He added that the strategic context had been amplified by the coronavirus pandemic and the uncertainty it had created.
Pressed on the company’s overall pivot, Looney was asked why shareholders should continue to be invested in BP if the message was they would likely make lower returns on some projects than if the company had stayed in the traditional oil and gas sector.
In response Looney – who has been in his role since February 2020 – sought to highlight three points around the investor proposition.
“First and foremost is committed distributions,” he said. “Yesterday we reset our dividend at five and a quarter cents per share per quarter. That is a resilient dividend intended to be robust at a variety of oil prices, and we committed to buy back shares with 60% of excess free cash.”
“The second thing that we pointed out yesterday is that we would have profitable growth and we believe we can grow this company over the next decade,” he added, noting guidance around EBIDA (earnings before interest, depreciation and amortization) per share growth and return growth through the next decade.
“Thirdly, it’s about sustainable value: for investors who want to invest in a company that is in itself decarbonizing and in doing so helping the world to decarbonize, we believe it’s a good proposition for them.”
‘Prudent course of action’
Luke Parker, vice president, corporate analysis at Wood Mackenzie, noted in a statement issued on Tuesday that BP’s dividend cut would “dominate the headlines.”
“By its own Q1 reasoning, BP didn’t need to cut,” he said. “Disposals have materially de-risked the financial outlook over the past few months – BP had done enough to cover an US$8 billion dividend pay-out in 2020 and 2021 at US$40/bbl Brent.”
“But if ever there was a moment to reset, this was it,” Parker added. “Several factors have converged to make it possible: coronavirus and everything that comes with it; a strategic pivot to net-zero on the horizon; Shell’s dividend reset; a new leadership with credit in the bank. Our view is that BP has taken the prudent course of action.”
At the end of April, Royal Dutch Shell lowered its dividend for the first three months of 2020 to $0.16 per share, down from $0.47 at the end of 2019.
Speaking to CNBC’s “Street Signs Europe” on Tuesday, Nick Coleman, senior editor of oil news at S&P Global Platts, described BP’s dividend cut as “very much expected and frankly inevitable.”
“Shell very dramatically cut its dividend in the previous quarter, so no great surprise there, I mean clearly it was a really tough quarter for BP mainly due to very, very low oil prices, their realized prices were even lower than Shell’s so … it’s a tough quarter for sure.”
— CNBC’s Sam Meredith contributed to this report.