BP halved its dividend on Tuesday after reporting a record $6.7 billion quarterly loss due to the collapse in global demand for energy products.
The dividend cut by BP comes at no surprise. Major oil companies were crushed in the second quarter as coronavirus lockdowns led to a sharp decline in demand for oil and gas products. Royal Dutch Shell is a major oil and gas company that recently announced a cut to its dividend.
BP said the outlook for energy demand and prices remains "challenging and uncertain," warning that the virus-induced global recession could weigh on demand for a "sustained period." As to how long, well, no specific guidance was given. We noted last month, KPMG estimates 14 million fewer vehicles on US highways due to remote working trends and permanent job loss.
Tuesday's halving of the dividend (first cut in a decade) to 5.25 cents per share was much larger than what analysts expected, due primarily to the company needing to get its massive debt load under control while adapting to a new environment, one which demand languishes as the global economic recovery is sluggish.
The company announced in June it would lay off nearly 10,000 workers globally by the end of the year.
Refinitiv data shows BP's 2Q loss was one for the record books, posting a $6.7 billion loss for the quarter. The net loss was mostly in line with average analysts' expectations. The loss is compared with profits of $2.8 billion a year earlier and $791 million in 1Q20.
BP's new Chief Executive Bernard Looney called the second quarter "challenging:"
"These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent bp. In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact. Beneath these, however, our performance remained resilient, with good cash flow and – most importantly – safe and reliable operations."
Despite BP's reduction in its dividend, shares trading in London and New York were higher on Tuesday morning as it announced a new strategy to pivot away from carbon-intensive fossil fuels to a greener initiative.
MSCI World Index versus Reuters Global Energy Index
Maybe the divergence above suggests global stocks are running on fumes.