At last: some big and hard numbers to support the new chief executive Bernard Looney’s previously loose talk about greening BP and supporting energy transition.
An impairment charge of up to $17.5bn (£14bn) is hefty, even by Big Oil standards. It is an admission that a chunk of the oil and gas assets will never be developed (at least not by BP). That’s a significant concession, although one suspects more assets will have to be left stranded in future years if the corporate ambition to shrink the carbon footprint to net zero by 2050 is to be achieved.
Let’s not get carried away, though. Accounting adjustments are the easiest part of the strategic overhaul, especially when the charges are of the non-cash variety and BP’s hand was mostly forced by events.
The oil price has almost halved since last year, leaving BP’s long-term estimates, which were higher than most of its peers’, looking silly. A cut in forecasts from $75 a barrel to $55, with a roughly equivalent reduction in the assumption for gas prices, is a case of catching up with the effects of the pandemic. Fields where the economics of development were marginal anyway will have to be binned if $55 is the new long-term norm.
Spending less on oil and gas is only half the story, however. The real guide to Looney’s plans is his enthusiasm for investing more in low-carbon energy generation. BP’s current levels of spending on renewables can only be described as tokenistic – $500m annually out of an investment budget that, even after a sharp trim, will be $12bn this year.
Looney will have to move the dial substantially if he’s to live up the hype he has generated since his initial net-zero announcement in February. The big unveil of budgets is scheduled for September, which remains the moment to judge BP’s seriousness. Looney’s next step should be obvious: cut the unaffordable $8bn-a-year shareholder dividend to free up capital for investment in clean energy.
Ditching Atkins and Tyler may not save Hammerson from full regime change
Another week, another departure from retail property group Hammerson, owner of the Bull Ring in Birmingham and Brent Cross in London. A fortnight ago, chief executive, David Atkins, said he’d be off sometime before next spring. Now chairman, David Tyler, is heading for the exit; indeed, rather more quickly – at the end of September.
Two weeks ago, nobody at the company dared to mention the dismal share price in the send-off, so let’s do so now. It was roughly 550p when Tyler arrived in 2013, reached 700p in 2015 and is now just 112p.
Thus both men will be remembered by shareholders for their 2018 refrain that a 635p-a-share takeover approach from Klépierre of France “very significantly” undervalued Hammerson and its prospects. Even before Covid-19 arrived to accelerate the discomfort of all retail landlords, the boast was a very significant piece of tosh.
The new chair will be Robert Noel, who is fresh out of Landsec, a bigger and better performing landlord. He’s a credible outsider, in other words. That is useful in its own right but doubly so if the legacy of the Atkins-Tyler years is a cash-call on shareholders to repair an over-stretched balance sheet. If Hammerson ends up going down that route, full regime change in the boardroom was a minimum requirement.
The Treasury should go after companies keeping unneeded furlough cash
Well done, Bunzl – another company that is returning its furlough handout because the Covid-19 effect on its business was not as bad as feared. Indeed, Bunzl appears to have been a net gainer during the pandemic, with the divisions supplying packaging and equipment to supermarkets and hospitals generating more than enough growth to offset declines elsewhere.
The furlough sums are tiny in the context of a FTSE 100 company worth £6.4bn – just £5m-£10m, some of which came from non-UK governments. But it all counts, a point that should register with Rishi Sunak, our cash-strapped chancellor.
He was obliged to launch his job retention scheme in March in a hurry. Some claimants, like Bunzl, will turn out not to have needed support. Unlike Bunzl, some will try to stay quiet and keep the cash. The Treasury probably has no formal powers to demand repayment, but officials are presumably allowed to prod boards to think of their reputations. Use a sharp stick.
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