Analyst Note| Allen Good, CFA |
With its second-quarter earnings report, BP announced it would reduce its quarterly dividend payout by half and instituted a new shareholder remuneration policy as part of its broader transformation away from oil and gas over the next 10 years while it pursues it emissions reduction goals. With respect to earnings, BP announced an adjusted quarterly loss of $6.7 billion compared with earnings of $2.8 billion a year ago due to the coronavirus impact on commodity prices and margins. The adjusted earnings exclude an $11.8 billion impairment charge related to the revision of BP’s long-term pricing assumptions, which it announced in June. Considering that earlier announcement, BP’s strategic decision to move away from the oil and gas business and its relatively high debt levels, the move to reduce the dividend does not come as a surprise. In fact, the 50% reduction is likely less than what the market was expecting considering peer Shell’s earlier 67% dividend cut.