BP has been hit by a “double whammy” of negative factors, warning investors of weak oil trading results alongside a $5 billion writedown on green energy assets. The update sent shivers through the market, as it highlighted the challenges the company faces on both its legacy and transition fronts.
The $5 billion impairment is linked to the company’s decision to downgrade its gas and low-carbon energy divisions. This follows the cancellation of hydrogen initiatives and a move to divest from solar power. The company is effectively clearing out underperforming green assets to refocus on fossil fuels.
Simultaneously, the traditional profit engine of oil trading has sputtered. Like its competitor Shell, this company reported a weak performance in its trading division for the fourth quarter. This was exacerbated by a slump in global oil prices, which have fallen due to fears of oversupply.
Despite the operational struggles, the company delivered a positive surprise on debt. reducing net debt to between $22 billion and $23 billion demonstrates strong cash discipline. This fiscal prudence is intended to reassure shareholders that the dividend remains safe.
With full-year results due in February, the market is bracing for a sober assessment of the company’s health. Incoming CEO Meg O’Neill will have her work cut out for her as she attempts to revive growth in a low-price, low-margin environment.