BP Finances, BP has a disproportionately high net debt and hybrid debt. The company has lacked in efforts to replenish reserves and has raised debt to cover fines. The question is how BP will make sure that it rewards its shareholders and meets its strategic objectives. Here are some thoughts on BP’s finances. But it’s important to keep in mind that these are just a few of the factors that affect BP’s financial situation.
BP has unusually high net debt
BP has unusually high net debt, BP plc has announced it will reach its target of $35 billion in net debt during the first half of 2021. This is nearly a year ahead of schedule. While the company has been struggling to turn around its finances, its trading division has made significant progress. The company’s first quarter results were solid, and the firm reaped $4.7 billion in disposal proceeds. While the net debt level is still very high, BP is committed to returning surplus cash flow to shareholders.
The oil giant’s net debt stands at 1.3 times EBITDA, which is a solid interest coverage ratio. BP’s EBIT in the past year came in at 8.2 times interest expense. However, last year BP did turn around its EBIT line, delivering a record US$13b EBIT. Debt levels have to be looked at in the context of future profitability. However, BP has a long way to go to reduce its net debt.
BP did not replace all of its reserves during the first quarter of 2019. The company has long added to its reserves to drive growth, but that approach is not deemed the best in the current market. Lower oil prices have affected the value of these reserves. Instead of adding more reserves, BP is now focusing on increasing production volumes and maximizing shareholder value. This is a prudent strategy given its low oil prices. Even if BP does not reach its net debt target in the first quarter, the share buybacks could still be worth $2 billion or more to investors.
As a global oil company, BP has a unique combination of advantages. Its scale, vast oil reserves, and international asset diversification are all important factors. Its international footprint and market expertise are important assets. But these assets do not make up for its net debt. Instead, it is a critical factor in determining a company’s future prospects. It’s important to keep a close eye on BP’s financial numbers and use them to make informed decisions.
BP Finances Reserves
BP Finances Reserves, While BP’s debt is unusually high and its profits barely support its current dividend, the company still has nearly two decades of oil reserves that it stands to benefit from if oil prices rise. BP’s recent efforts to replace reserves have been less than stellar, but with this release, the company could see a significant rise in profits. It also has a sluggish recovery from its oil crisis, which may put BP’s shares in a better light.
BP has not replaced reserves at a full rate for the past two years. The company has defended its efforts, but said that the oil industry is shifting toward renewable energy. This may make the reserve replacement ratio less relevant to BP as it turns from an international oil company to an integrated energy firm. Instead, it should focus on boosting its reserve replacement rate. However, this might not be the best time for BP to improve its reserve replacement ratio.
BP has not shared the information it was required to disclose to congressional panels. Besides not sharing information with congressional panels, the company failed to report on the pipeline inspection program it was using. The EPA has the authority to ban companies from doing business with the government. If BP is debarred, it will lose access to these reserves, which generated $16 billion in revenue for BP last year.
BP Finances Fines
BP Finances Fines, BP has settled several civil and criminal claims related to the 2010 oil spill in the Gulf of Mexico. The company has agreed to pay a total of $20.8 billion to settle all claims and settle the criminal charges. The settlement represents a small fraction of the company’s profits each year. However, it is significant nonetheless because BP made $25.7 billion in profit in 2011.
The BP settlement includes criminal fines and payments to the National Academy of Sciences and the National Fish and Wildlife Foundation. The criminal settlement does not fall under the Restore Act, which directs 80 percent of the civil penalties BP must pay to states and local governments in the Gulf Coast region. Attorney General Eric Holder said more than half of the settlement proceeds will benefit the gulf coast region. Although the fines were large, the settlement still represents a large sum of money.
BP has paid a record criminal penalty and will likely face even larger fines. However, a record fine won’t stop the company from risk-taking or corner-cutting again. Instead, the record fine was extracted through the market’s reaction to the spill. Shares of BP sank to a low of $27 after the spill. Since then, however, the price of the company has risen to $40.
The Clean Water Act allows for fines of up to $4,300 per barrel of oil that was discharged. In this case, Judge Barbier set the figure at 3.19 million barrels. However, BP could face fines of up to $21 billion, depending on the amount of willful or gross negligence. The company agreed to plead guilty to one misdemeanor count under the Clean Water Act and another under the Migratory Bird Treaty Act.
BP Finances Hybrid Debt
BP Finances Hybrid Debt, BP has recently issued $12 billion in hybrid debt, which were oversubscribed. The company is using these bonds to bolster its balance sheet and to maintain its investment grade credit ratings. Although the bonds do not have a maturity date, they are treated like equity from an accounting standpoint and by credit rating agencies. They also benefit the issuer’s credit ratios, and BP has a long history of successful debt-related issuances.
The new BP debt has a 4.875 per cent coupon, which is relatively high for the company, but is still more than twice the yield on the 10-year US Treasury. The hybrid debt is BP’s largest tranche to date in the debt capital markets. Other companies, such as Repsol and Total, have raised cash in hybrid debt in recent months. If the company succeeds in implementing its plans, it will have one of the largest debt-based capital raises in the world.
BP’s reliance on hybrid debt has come at a critical time for the company. The company announced write-downs of up to $17.5 billion on its assets, and the recent coronavirus pandemic has affected its global energy business. The hybrid debt will allow BP to refocus on its core business while lowering its debt burden. The low interest rate is also a major draw to companies, and BP was able to avoid an equity sale.
The current oil price crash could also hamper the company’s ambitious plans. Already, the company has announced cuts in jobs and wrote off $17.5 billion of assets. It is pivoting to renewable energy and shifting away from oil production, though the current low prices could restrict this growth. However, the company still plans to increase upstream production by 2021. However, the crash may limit the amount of production BP is able to produce.
BP Finances Zero Carbon Company by 2050
BP has an ambitious goal to become a net zero carbon company by the year 2050. The company aims to achieve this goal by supporting the efforts of the world as a whole. BP’s pledge includes 10 targets that are intended to fundamentally transform the company while maintaining its performance and commitment to its customers. The following are some of the objectives and plans outlined in the BP’s 2050 sustainability report.
BP has announced new business plans that will significantly reduce its carbon intensity. The company will install methane measurement equipment in major oil and gas processing sites by 2023. By 2050, BP plans to reduce its methane intensity and invest in new non-oil and gas businesses. This goal requires BP to increase investments in these businesses, including renewable energy and other clean technologies.
BP is trying to position itself as an energy system company, with scale and expertise to help companies create low-carbon projects. While these goals are noble, the company must balance its ambitions with its desire to generate profits. In short, BP must be proactive in changing its business model to become a net zero carbon company by 2050. However, there are many hurdles that the company must overcome.
BP is now splitting itself into six business units. One of these is strategy and sustainability, headed by Giulia Chierchia, who has previously worked at McKinsey. Another is Regions, Cities and Solutions, headed by William Lin. This department will focus on developing and investing in new energy solutions and building relationships with major corporations. Finally, there are communications and people and culture ministries headed by Kerry Dryburgh and Geoff Morrell. We continue to produce content for you. You can search through the Google search engine. If you’re interested in related finance topics, you can check our recent article SaaS Finances or you can find the relative posts right below.