Shares in oil major BP (BP.) are down 1.6% to 309p as it unveils a predictably horrible set of first quarter figures and warns worse is to come in the second quarter.
The dividend is being maintained at 10.5 cents for now, despite a $4.37bn loss for the first three months of 2020. The loss largely reflecting writedowns to the value of its oil inventories with the company’s preferred measure of replacement cost profit down two-thirds to $791m and below consensus forecasts.
The company points to $32bn of liquidity but its gearing level is still well above its targeted 20% to 30% range at 36.2% and the company has admitted it will not return to these levels until 2021 at the earliest.
Operating costs and spending are being cut and the company is still targeting asset sales, although achieving them could be difficult in the current environment. The company has already had to revise the terms of the already agreed $5.6bn sale of its Alaskan business to Hilcorp.
NUMBERS LOOK ‘OMINOUS’
Cantor Fitzgerald comments: ‘The dividend will certainly mitigate matters, although the figures are otherwise pretty ominous, particularly given the impact of the oil price crash and pandemic largely being confined to March.
‘Inventory write-downs were to be expected, so the reported loss isn’t such a surprise, but cash flow has fallen significantly? Will definitely get a lot worse before it gets better, although the liquidity position and cost-cutting measures will see it through.’
AJ Bell investment director Russ Mould says: ‘With BP’s balance sheet as strained as it has been in the best part of a decade there will be understandable nervousness about the fate of the dividend.
‘When the company last faced a predicament on this scale - in the form of the Gulf of Mexico oil spill in 2010 - it was forced to suspend the dividend.
‘Though that may have been in part a decision driven by the optics of doling out cash to shareholders when it was on the hook for meeting the clean-up costs of that disaster.
‘In one sense that experience might give investors some comfort given BP has successfully faced down an existential crisis before, even if the circumstances are very different.’
