BP says it will reduce its operating costs by $2.5 billion in 2021 and cut about 10,000 jobs, mostly before the end of this year, due to the collapse in oil demand caused by COVID-19 and as part of BP’s strategy to become a lower-carbon company.
BP in early April announced a cut of about 25%, approximately $2.5 billion, in its planned capital expenditure (capex) to $12.0 billion for 2020. BP CEO Bernard Looney now says those capex cuts will total about $3.0 billion. The company will also now reduce its operating costs, currently $22.0 billion, by $2.5 billion. It has not named any specific business divisions that will be affected.
“It was always part of the plan to make BP a leaner, faster-moving, and lower-carbon company. That is how we will deliver on our net zero ambition. And that is how we will seize opportunities throughout the energy transition. Then the COVID-19 pandemic took hold,” Looney says. Flagging the widespread economic fallout of the pandemic, he says the oil price has plunged “well below the level we need to turn a profit. We are spending much, much more than we make—I am talking millions of dollars, every day.” The company’s net debt rose by $6 billion in the first quarter as a result. “We have to spend less money,” Looney says.
The previously flagged 25% cut in capex for this year is a reduction of “around $3 billion,” but it “currently costs around $22 billion a year to run the company—of which around $8 billion is people costs,” says Looney. BP will reduce those operating costs by $2.5 billion in 2021 “and we will likely have to go even further,” he says.
BP introduced a three-month freeze on redundancies in March, a moratorium that ended on Monday. “We will now begin a process that will see close to 10,000 people leaving BP—most by the end of this year,” adds Looney, who became CEO in February. The majority of those affected, about 15% of BP’s worldwide workforce, will be in office-based jobs and not in the retail business, according to the company. BP employs about 15,000 people in the UK and more than 70,000 worldwide.
The statement by Looney also says the company will give no pay raises to senior employees and group leaders until March 2021 and that employees should not factor any cash bonuses into their financial plans this year. Pay raises will be reintroduced for less-senior employees as of 1 October. BP announced a round of senior management appointments last month that halved the size of its leadership team as part of Looney’s plans to reshape the company’s structure, with BP looking to reduce the number of group leaders “by around one third.”
“To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP. While the external environment is driving us to move faster—and perhaps go deeper at this stage than we originally intended—the direction of travel remains the same,” Looney says. The moves will “help strengthen our finances” and help create a more competitive company, he adds.
BP reported a 61% fall in its first-quarter petrochemical earnings to $65 million from $169 million a year earlier on an underlying replacement-cost (RC) basis before interest and tax, and group underlying RC profit before interest and tax plunged 50% to $2.39 billion. The price of Brent crude declined 74% during the first quarter. The energy industry had been “hit by supply and demand shocks on a scale never seen before,” Looney said when announcing the results.
By: Mark Thomas
Source: Chemical Week
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