BP PLC indicated it expects to record an impairment charge of up to $5 billion in the fourth quarter. This comes just weeks after the company appointed a new Chief Executive Officer, as it intensifies efforts to return to profitability.
The oil giant stated in a release on Wednesday that the impairment expense primarily involves its gas and low-carbon energy businesses. The announcement was made ahead of next month's earnings report. BP also noted that its oil trading performance is anticipated to be weak for a second consecutive quarter, while crude oil production is expected to remain flat, although net debt has decreased.
This report follows the abrupt removal of Murray Auchincloss. Previously, after years of underperforming investments in low-carbon businesses and facing pressure from activist shareholder Elliott Investment Management, Auchincloss had pushed for a strategic refocus on fossil fuels. The new Chairman, Albert Manifold, stated that the pace of strategic adjustment was insufficiently fast and appointed Meg O'Neill, CEO of Woodside Energy Group Ltd., to replace him.
The London-based oil major is divesting non-strategic assets, using proceeds from sales to help reduce its debt load. Meanwhile, against the backdrop of lower oil prices, the combination of weak oil trading results and stagnant production increases pressure on BP to maintain its share buyback pace.
O'Neill is set to take office in April, by which time some preliminary work to reverse the company's fortunes will already be in place. BP announced several field start-ups last year and, in December, reached an agreement to sell a majority stake in its Castrol lubricants division to the U.S. investment firm Scepter Capital, a key step in its debt reduction and portfolio reshaping efforts.
Driven by these strategic shifts, BP's share price rose 10% last year in U.S. dollar terms, nearly matching the gain of Shell PLC and ranking among the best-performing stocks within the group of five major oil companies. The company's third-quarter earnings beat market expectations largely due to increased oil and gas production.
However, the current international crude market appears tilted towards a supply surplus, and the downward trend in oil prices threatens to undermine BP's transition progress, even though geopolitical risks provide some support. Despite recent turmoil in Venezuela and Iran, the international benchmark Brent crude is trading below the $70 per barrel level that BP requires to achieve its transition goals.
Both Shell PLC and Exxon Mobil Corp. have signaled that they anticipate facing greater pressure on their fourth-quarter performance.
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