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BP’s Upstream to be smaller in future

Oil&Gas Materials 20 June 2020 14:18 (UTC +04:00)
BP’s Upstream to be smaller in future

BAKU, Azerbaijan, June 20

By Leman Zeynalova – Trend:

BP’s oil and gas business is going to shrink, Trend reports citing Wood Mackenzie.

“Upstream, which has accounted for most of the company’s cash flow, will be smaller in future,” the company said in its analysis.

Wood Mackenzie believes that it is ultimately the fate for oil and gas companies in the energy transition.

“Decline, though, will be strung out over decades. And if it’s built around advantaged assets – low cost, low carbon-intensity and high margin – decline can be good business. In harvest mode, free cash flow could be material, and either returned to shareholders or re-invested into the energy transition,” reads the report.

There’s a green arms race underway, with companies positioning to be seen as part of the solution to climate change rather than the problem, said the company.

“The collapse in oil and gas prices and extreme price volatility in 2020 are starting to change perceptions of the relative risk between investing in oil and gas and new energy. Pre-FID upstream projects that worked at US$60/bbl don’t look so clever at US$35/bbl. Risk-adjusted, the more modest returns typical from renewables projects can stack up pretty well,” Wood Mackenzie believes.

As for US Majors, Wood Mackenzie said they have shown little inclination to follow.

“ExxonMobil and Chevron have strategies focused on oil and gas and paying out the dividends that flow from it. ExxonMobil has expressed an upbeat view of the-long term fundamentals for oil and gas and its appetite to continue to invest. What’s apparent is that investors today will pay more for the US focus than European diversification. The US Majors’ stock market values are trading at a premium to our valuation, whereas the Europeans are at a discount. This suggests that investors see diversification as higher risk, though other factors, including the strength of the US stock market, may influence ratings.”

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Follow the author on Twitter:@Lyaman_Zeyn

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