BP Transformation Pains: The Two Quarter Will Write Down Over $10 Billion Of Assets.

In June 15th, BP, the global oil giant, announced on its website that it will carry out non cash impairment and book value cancellation in the second quarter of this year, estimated to be between 13 billion and 17 billion 500 million dollars after tax.

BP management believes that after the outbreak, countries around the world will speed up their transformation to a low carbon economy and energy system in order to seek "better reconstruction" so as to ensure that the economy is more flexible in the future. With the continuous adaptation of enterprises to such a new environment, the energy industry is undergoing extensive and profound changes.

Therefore, BP will adjust the average price of the Brent crude oil in the next thirty years to 55 US dollars / barrel. The price of natural gas is expected to be adjusted to US $2.90 / Mega thermal unit, which is 27% and 31% lower than the previous forecast.

The move has released a blockbuster to the global energy industry: the new BP price is expected to be among the lowest among the oil giants including royal Shell and Shell, France, and will likely put pressure on its competitors to force the global oil giants to take similar actions.

At the same time, this is also the first time publicly recognized by the global oil giants that the spread of the epidemic is much more serious than expected, and is bound to lead to a faster change in energy structure than expected.

"It is foreseeable that there will likely be a wide range of price expectation revaluation and asset value write downs." An oil central enterprise source told reporters, "facing the trend of the future energy industry, the world is getting closer and closer to a consensus that the peak of oil demand will come ahead of schedule."

The cost of transformation

In February 13th this year, the new BP CEO new Boehner announced his new mission and vision. The 110 year old oil giant will become a "net zero" company in 2050 and will help the world achieve zero emissions.

The cost of all this is the unprecedented transformation of the company.

First of all, in the company's organizational structure, the "upstream, downstream and other business sectors" that have been followed for more than a century have been completely abandoned, and all of them have been dispersed and reorganized into twelve parallel business segments.

In terms of performance and value, there are four business segments: production and operation, customers and products, natural gas and low carbon energy, and innovation and engineering. Among them, the first three business segments contain the upstream and downstream businesses of the previous BP, while natural gas is split and combined with low carbon energy to form a new department. The fourth business segments are responsible for BP's current investment projects and look for new technologies.

Secondly, in terms of staff, in response to the sudden fall in the first quarter performance of the new crown pneumonia epidemic and the change in organizational structure, BP announced that it will reduce 10 thousand employees worldwide, accounting for 15% of the company's current staff ratio, with the aim of making it a more lean, flat and streamlined organization.

Finally, in June 15th, we announced a massive asset write down in June 15th, setting a new oil price expectation for the next thirty years, and adjusting the current assets according to this expectation. At the same time, the company decided to cancel the resources of Mexico Bay and Canada. It may decide that it will not be developed in the next few decades.

"In the long run, I think this is another step to re evaluate the value of oil and gas assets and BP from oil giants to energy giants." Luke Parker, vice president of enterprise analysis at Wood Mackenzie, told reporters that "transformation strategy will be a process of decades, but they have come to realize that the value of their upstream assets is lower than what they thought 6 months ago, and some of them are even worthless."

He said that in the short term, the impact of the $17 billion 500 million write down on shareholders' equity is to increase the company's debt to 45%, if it is 13 billion dollars, then 44%, "such a high debt rate is disturbing." He said, "the urgency of debt repayment has increased, and will further affect its dividend composition."

Oil demand continues to slump

Since mankind entered the oil age, oil companies have been the most profitable enterprises in the world for a long time. But now, the most profitable area of fossil fuel - oil and gas production is being questioned.

This year, Tesla's share price has been rushing to 1000 U.S. dollars / share, or nearly three times, while BP's share price has fallen all the way, from close to 90 U.S. dollars / share to the current deficit of less than 25 U.S. dollars / share. Petroleum and natural gas, as the most important energy source supporting human society at present, are slowly leaving the center of the stage.

On the afternoon of 16, the International Energy Agency (IEA) released a report that the demand for crude oil this year is expected to decrease by 8 million 100 thousand barrels per day, compared with 5 million 700 thousand barrels per day in 2021. That is to say, until 2022, oil demand will return to the level of 2019.

IEA said in the report that the impact of the blockade measures was the most serious in the second quarter of this year, and the demand for crude oil decreased by 17 million 800 thousand barrels per day compared with the same period last year.

"In fact, the global trend towards the oil market is gradually reaching some consensus. The collapse of the current oil demand will take a long time to recover." The above oil central enterprises told reporters, "according to the performance of the last financial crisis, it takes two to three years to recover, but obviously, the impact of the epidemic is far more profound than the simple financial crisis."

Since the beginning of this year, the new infrastructure has become the focus of attention from all walks of life. Unlike traditional infrastructures, the new capital construction is characterized by the application of advanced technologies such as information communication, artificial intelligence and new energy, so as to build new information network, transportation network and energy network.

Among them, UHV and new energy vehicle charging piles will become the focus of China's energy infrastructure development in the future. "Gasoline and diesel will still exist in the future, but electricity has become an irreversible trend for the replacement of traditional fossil fuels." Zou Ji, President of the energy foundation, told reporters.

On the supply side, with the continuous improvement of oil production technology, to some extent, the future of oil can be said to be completely scarce. The peak of demand will also come ahead of time. For oil giants, if we do not transform, the future will be narrower and narrower.