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BP ‘resets’ dividend by 50% as it promises to cut oil production by 40% and massively increase investment in renewables

A 5.25 cents per share quarterly dividend is set to be the new normal for BP which aims to transition into an integrated energy company.

BP PLC - BP ‘resets’ dividend by 50% as it promises to cut oil production by 40% and massively increase investment in renewables

BP PLC (LON:BP. has announced a dividend ‘reset’ – slashing shareholder payouts by 50% - as it introduces a new strategy to transition into “net-zero” carbon and become an integrated energy company.

Shares raced to a 7.29% gain in Tuesday’s deals as the record-breaking loss landed squarely within the markets low expectations.

Financial results for the second quarter see BP report a US$16.8bn loss, including US$10.9bn of impairments, amidst collapsed crude oil prices and low demand during the pandemic.

The oil major reported an underlying replacement cost loss of US$6.7bn versus a US$2.8bn profit in the same period a year before. BP’s write-offs come as a result of new oil price forecasts and expectations, very weak refining margins and low demand for fuels and lubricants.

READ: BP sells petrochemicals to INEOS for US$5bn

It announced a 5.25 cents per share dividend, down from 10.5 cents, as part of a new distribution strategy tied into its plans to pivot the business and increase investments in renewable energy.

Over the next ten years the company intends to increase low carbon investments 10-fold, aiming to fund around US$5bn a year into low carbon technologies, including renewables, bioenergy and early positions in hydrogen and CCUS.

It is targeting 50GW of net renewable generating capacity by 2030, and, at the same time it anticipates that oil production will reduce by 40% (1mln barrels per day less than in 2019), with the retained assets being more cost and carbon resilient.

BP intends that its downgraded dividend will be permanent, though it promised to return at least 60% of surplus cash will be returned to investors via share buybacks – once it has deleveraged its balance sheet and subject to credit rating.

"Energy markets are fundamentally changing, shifting towards low carbon, driven by societal expectations, technology and changes in consumer preferences,” said Helge Lund, BP chairman.

“We are confident that the decisions we have taken and the strategy we are setting out today are right for bp, for our shareholders, and for wider society."

Lund added: “Our investor proposition includes a new distribution policy, which is designed to reward our investors with committed distributions, and which has informed the board's decision on the dividend declared today for the second quarter of 2020.”

Atlantic Capital Markets’  John Woolfitt, meanwhile, added: “The losses announced by BP today, although substantial, were in line with analyst expectations, while the strategy shift completely repositions the group’s forward investment proposition by consistently reducing the reliance on oil and increasing revenues from an integrated portfolio of low carbon technologies, including renewables, bioenergy, hydrogen and CCUS.

“These moves tick most of the boxes in regard to the Atlantic investment strategy, and while near term COVID risks remain, we expect any early evidence of revenue growth from BP’s low carbon portfolio to act as a catalyst for the share price.”


--UPDATED to include share price details and commentary--

Quick facts: BP PLC

Price: 299.55 GBX

Market: LSE
Market Cap: £60.95 billion

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