Worries surround BP after warning it could cut dividends after taking $17 billion hit

Fears continue to mount that BP will cut its dividend after issuing a warning that it will take a one-off hit of up to $17 billion.

The energy giant — whose dividend is a critical source of income for pensions and other investments — has made sweeping write-downs after slashing its forecasts for oil prices and scrapping plans to develop a series of oilfields.

The move reflects the FTSE100 company’s belief that the coronavirus crisis will have a long lasting effect on the global economy and oil demand — and will eventually lead to a move away from fossil fuels and gear towards greener energy.

The impact of the charges on its second-quarter results could push the oil major to a record loss — outstripping its £17bn swing into the red in 2010 following the Deepwater Horizon oil spill.

It’s been widely speculated that the announcement could be a way of ‘softening the blow’ for an imminent cut to the prize dividend, which has been a lifeline for investors and savers alike who are relying on shareholder payouts more than ever amid heavily volatile stock markets.

Only a week ago, the 111-year old oil business announced it would lay off around 15 percent of its global workforce — 10,000 out of some 70,000 staff.

Boss Bernard Looney, who took over from Bob Dudley in February, said much of the cuts would fall on senior managers. He was already planning to restructure the company and refocus on a green agenda, but this has been accelerated by the coronavirus crisis.

Around half of the second-quarter charges will come from writing off most of the value of undeveloped projects — into which it had already sunk billions of pounds. It has large pre-production sites in the US Gulf of Mexico, Canada and Brazil.

The other half will come from BP lowering the value of its existing assets after it reduced its estimate for oil prices between 2021 and 2050 to $55 a barrel, down from $70 a barrel previously.

Oil prices started the year at $68 a barrel but plunged to a low of $19 in April as the coronavirus pandemic brought travel and industry in much of the world to a standstill. Brent crude is now trading at around $37. Some major institutional investors have long argued that oil majors’ use of overly optimistic long-term oil price assumptions has led them to overestimate their ability to pay out hefty dividends.

In April, BP handed savers and pensioners a lifeline by promising to pay a £1.7billion dividend for the first quarter, despite profits slumping by two-thirds.

The energy giant committed to handing investors 10.5 cents a share — up from 10.25 cents in the first quarter of 2019.

But days later its commitment to the first-quarter payout was thrown into sharp contrast with rival Shell, which slashed its dividend for the first time since the Second World War. Helal Miah, investment research analyst at The Share Centre, said the announcement ‘may be the management’s way of softening the blow and leading us to expect a cut in the dividend when they publish the second-quarter results in early August’.

Shares fell 2.2 %, or 7.05p, to 316p.

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