Capital Markets | Impairment

BP Expects ~$15 Billion in Impairment Charges for 2Q 2020

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BP plc has announced asset write downs / impairment charges as a result of the COVID-19 pandemic and oil price uncertainty.

The company expects non-cash impairment charges and write-offs in Q2 of approximately $13 billion to $17.5 billion post-tax.

They consist of:

• BP currently estimates that non-cash, pre-tax impairment charges against property, plant & equipment (PP&E) in the range of $8 billion to $11 billion

• write-offs of exploration intangibles in the range of $8 billion to $10 billion

This is a result of revising its long-term price assumptions, lowering them and extending the period covered to 2050.

CEO Bernard Looney said: “In February we set out to become a net zero company by 2050 or sooner. Since then we have been in action, developing our strategy to become a more diversified, resilient and lower carbon company. As part of that process, we have been reviewing our price assumptions over a longer horizon. That work has been informed by the COVID-19 pandemic, which increasingly looks as if it will have an enduring economic impact.

“So, we have reset our price outlook to reflect that impact and the likelihood of greater efforts to ‘build back better’ towards a Paris-consistent world. We are also reviewing our development plans. All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”

Revised Price Assumptions

BP’s revised investment appraisal long-term price assumptions are now an average of around $55/bbl for Brent and $2.90 per mmBtu for Henry Hub gas ($2020 real), from 2021-2050. These lower long-term price assumptions are considered by bp to be broadly in line with a range of transition paths consistent with the Paris climate goals. However, they do not correspond to any specific Paris-consistent scenario.

As a result of the revision of long-term price assumptions used for investment appraisal, bp has also revised the price assumptions it uses in value in-use impairment testing and these are now aligned to bp’s revised investment appraisal price assumptions.

BP has also revised its carbon prices for the period to 2050 and these now include a price of $100/teCO2 in 2030 ($2020 real).

Asset Review

BP is also reviewing its intent to develop some of its exploration prospects and consequently is assessing the carrying values of the group’s intangible assets.