BP dividend hangs in the balance

Ed Clowes
·2-min read
BP sign
BP sign

Oil prices dropped fell below $40 on Monday for the first time in several weeks as mounting concerns about oversupply weighed on energy markets.

The slide provides a gloomy backdrop to BP’s second quarter results released on Tuesday morning that are expected to reveal a big loss for the oil titan.

Analysts suggest that the market widely expects the London-listed company to follow in the footsteps of rival Shell, which slashed its dividend by two thirds last quarter, in what would be a major blow to BP’s army of retail investors.

In trimming its dividend, the company would become the 50th FTSE 100 firm to do so this year, joining the likes of BT, HSBC, and Sainsbury's that have all been hit hard by the pandemic.

BP, which pays out £1.6bn to shareholders every quarter, has come under intense pressure following the collapse of oil prices this year - a downturn that has already led to more than 10,000 redundancies. 

The company has already said that it will slash the value of its oil and gas assets by up to £14bn, while last week Shell posted the worst quarterly results in its history.

In June, BP said it had sharply increased the price it believes it will be forced to pay governments for its carbon dioxide emissions.

Previously, it estimated it would be required to pay $40 per tonne of CO2, but that has more than doubled to $100 as more governments argue that higher taxes are the only way to stop the use of fossil fuels.

Meanwhile, BP has also reset its outlook for future oil prices after Covid-19 dramatically reduced demand for fuel.

Markets Hub - BP
Markets Hub - BP

The share price has fallen by more than 12pc in the past two weeks, which analysts said suggested investors had already priced in a cut to the dividend.

The quarterly payout – the third-largest in the UK – is popular with many pension funds for its generous income stream.

Despite a slight recovery in oil prices over the past month that may provide chief executive Bernard Looney with some breathing room, analysts at Morgan Stanley forecast a 50pc dividend cut for BP this year. 

Meanwhile, workers on North Sea oil rigs – where BP still maintains a significant presence – have been working dangerously long hours, a union representative said.

Some are working for as long as three weeks at a time, operating dangerous machinery in often harsh conditions.

Jake Molloy of the RMT union said: “The general public don’t understand the stresses and strains of being offshore - three weeks would break me.”