almost 4 years ago • 2 mins
Oil giant BP announced an almost 70% drop in first-quarter profit on Tuesday, sure, but forward-looking investors probably paid more attention to cash it’d tucked away for later 💵
BP is an “integrated” oil and gas company, which means it specializes in everything from exploration and production to refinement, distribution, and trading. It even has a renewable energy arm for good measure.
But as the coronavirus pandemic wrecked demand for both oil and its end-products like diesel and jet fuel – and, by extension, the oil price 🛢 – BP’s earnings unsurprisingly took a tumble. And the oil titan looks like it might be worried the worst is yet to come: it took on a fresh $10 billion overdraft and sold $7 billion of new bonds to investors.
BP’s increased debt comes with pros and cons. On the one hand, the reserves should give the company enough financial firepower to survive the current economic battle. On the other, if the oil price stays as low as it has and the impending recession drags on too long, BP’s falling income may make it difficult to cover its now-higher interest payments ⚖️ The company’s ratio of debt to equity is higher than it’d like at the moment, and while it still plans to sell off $15 billion worth of assets to narrow that ratio, next quarter’s dividend payment might come under review if it can't.
Dividends aren’t necessarily a case of do or die, as BP reminded investors on Tuesday. The oil major said it’d consider “scrip dividends” instead, where – rather than cash – investors receive a fraction of a new share in the company. Some investors will appreciate the lower-tax reward, but others might find the loss of cash income unforgivable 🤷♀️
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