BP's $17.5 Billion Write-Down

BP's $17.5 Billion Write-Down

over 3 years ago2 mins

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BP might look big and tough, but it’s just as frightened as the rest of us: the British oil company admitted on Monday it could face asset “write-downs” worth $17.5 billion this quarter 💰

What does this mean?

Accountants regularly assess what a company’s assets are worth, and if they and the company’s bosses decide one of those assets isn’t actually as valuable as they thought, they’ll write down its value – effectively lowering what it’s worth on paper.

BP’s upcoming write-down coincides with the company’s lowering of its oil and gas price forecasts: the giant now thinks the average price of a barrel of oil will be $55 from next year through to 2050 – more than 25% below its previous prediction 🛢 And if BP thinks oil’s worth less, the oil major’s oil fields must be too, leading to the write-down it’ll announce in its second-quarter update.

Source: The Wall Street Journal
Source: The Wall Street Journal

Why should I care?

Things have gone from bad to worse for BP and its investors: the company revealed a 70% drop in its first-quarter profit in April, and announced 10,000 job cuts last week 📉 And while we’ll have to wait till August to see just how much damage this write-down has done to BP’s accounts, some investors weren’t keen to wait around: they sold off the oil major’s stock on Monday, and it fell 3%.

Source: Google Finance
Source: Google Finance

One reason BP has lowered its oil price forecast is that it believes the coronavirus pandemic will actually accelerate the world’s transition to a lower-carbon economy. And BP wants to play its part, with an aim of net-zero carbon emissions by 2050 🌿 A Goldman Sachs report last year argued big oil companies would be at the center of the climate revolution – and with Shell, Repsol, and Total all on the front foot when it comes to environmental concerns, it might well be right.

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