Sep 24, 2020
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Considering BP Stock? See How Pandemic Changed BP

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BRZEZNIK POLAND – 2020/02/24: BP petrol station logo. (Photo by Karol Serewis/SOPA. [+] SOPA IMAGES/LIGHTROCKET VIA GETTY IMAGES After halting exploration activity and curtailing capital expenditure according to the Covid-19 pandemic BP (NYSE: BP) released a new strategic direction with a focus on renewables and mobility including the second-quarter results. The company incurred an $11

 

8 billion impairment charge and $9. 6 billion of exploration write-off through the revised outlook of oil & gas prices in the coming years. With renewable energy generation and electric mobility as key areas of profitable growth BP is targeting a 4-percentage point jump in ROACE (return on average capital employed) from 8

 

9% in 2019 to 13% in 2030. Interestingly the company plans to spend nearly 50% of its capital expenditure budget at the low carbon energy portfolio and future mobility solutions. Trefis highlights the historical trends in BP s Revenues across segments in an interactive dashboard analysis. Upstream oil & gas production to decline by 23% by 2025 While the upstream oil & gas production declined by just 3

 

5% (y-o-y) to 2. 5 MMBOED the revenues observed a 47% contraction through weak benchmark prices. As nearly 80% of the capex budget is directed towards the Upstream segment the company s long-term price assumption of Brent remaining under $50/barrel until 2025 has brought an important shift to its capital allocation strategy

 

In 2019 BP spent nearly $13 billion on its hydrocarbon business (Upstream & Downstream) and it plans to lessen it by a staggering 30% to $9 billion by 2025. Thus the upstream production volumes are likely to contract by 23% to two MMBOED. Also the company plans to further lower the upstream production volumes to 1

 

5 MMBOED by 2030 – a 40% reduction in the coming decade. Will electric mobility drive BP s profitability? Currently BP recognizes revenues from the alternate energy business under the Corporate segment. In 2019 the company earned just $1 billion (less than 0. 4% of total revenues) from other businesses and corporate activities

 

Per recent filings the company has 2. 5 GW of installed renewable power and 7 500 EV charging points around the globe. Through the expectancies of weak fossil fuel demand the company plans to expand its renewable capacity by 8x and EV charging points by 3x in the next five years

 

Moreover the percentage of capital expenditure towards BP s transition portfolio including low carbon electricity electrification mobility renewable trading etc. is expected to be almost 50% of the whole capital expenditure budget by 2025. While the renewable energy business is expected to generate a ROACE of 8-10% the ease and mobility solutions usually are a key driver of BP s profitability with a ROACE of 15-20%

 

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