This week's newsletters will focus on a couple of recent articles about BP. The first of these articles, in the url below, is interesting because, at the time, it was the first announcement I had seen by a major fossil fuel company (in this case, BP) that it is writing down a substantive amount of its oil reserves:
"BP sent a signal to investors … that the economic shock of the pandemic would reverberate for years, and that less gas and oil would probably be needed in the future. The London-based oil giant told shareholders the company expected to write down as much as $17.5 billion of its oil and gas holdings in its next quarterly report."
I think the article is important because this write-down is not merely because the firm's current reserves are worth less (due to a drop in global demand, which has caused a significant drop in the price of oil), but also because the firm fully expects to leave some of those reserves in the ground:
"With the write-down, which could amount to as much as 12 percent of the previous book value of the oil and gas assets, [CEO, Bernard] Looney, 49, is preparing the company for a future in which it will produce less fossil fuel than previously expected. It is likely to be the largest write-down since 2010, when the company recorded a $32 billion hit related to the Deepwater Horizon disaster in the Gulf of Mexico."
This is a dramatic turnaround from only a short time ago, when investors were rewarding new discoveries of oil, irrespective of the debate around climate change, with the full expectation that those reserves would be extracted:
"In past years, companies rushed to acquire oil and gas fields and bring the crude or natural gas to market. Now, analysts say, investors are skeptical of all but the most profitable investments in fossil fuels because it is not clear that there will be demand for them — especially as many governments strive to meet the requirements of the 2015 Paris agreement on global warming."
Specifically:
"The write-downs are being taken for two reasons. BP has cut its long-term expectations of oil and gas prices by about 30 percent, to $55 a barrel for oil, a move that reduces the value of its assets. The company is also writing off resources, in places like the Gulf of Mexico and Canada, that it has on its books but may decide not to develop over the coming decades."
This is essential if we are to remain within our carbon budget (see Strategic CSR – Divestment) and have any hope of preserving the planet in anything like its current livable form. And there is some evidence that this perspective is spreading through the industry, although is not shared by all firms. See here for a similar announcement by Shell, subsequently, but here for an article reporting Exxon's resistance to such a write-down of its assets.
Take care
David
David Chandler
© Sage Publications, 2020
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
BP Steps Up Preparations for a World That Wants Less Oil
By Stanley Reed
June 16, 2020
The New York Times
Late Edition – Final
B7
