The first quarter profits of British energy giant BP tumbled 67%, reflecting a $4.4 billion loss, as the coronavirus (COVID-19) crisis shredded oil demand while the energy major's debt rose, the company announced on Tuesday.
The London-based oil and gas company reported an underlying replacement cost profit, its definition of net income, of $800 million, compared with $2.4 billion for the same period a year earlier.
"The economic impact of the COVID-19 pandemic coupled with pre-existing supply and demand factors have resulted in an exceptionally challenged commodity environment," BP said in a statement.
It noted that oil and gas production faced significant uncertainties linked to collapsing oil prices and tumbling demand, as well as due to a deal between OPEC, Russia and other producers to cut global supplies of crude by about 10%.
BP said it planned to reduce cash costs by $2.5 billion by the end of 2021 relative to 2019.
"Some of these cost savings may have associated restructuring charges," the company added.
Furthermore, it expects significantly lower refining margins in the second quarter when global restrictions on movement to halt the spread of the virus reach their peak.
BP's debt surged to $51.4 billion in the first quarter, $6 billion higher than the quarter before.
The company’s debt-to-capital ratio, or gearing, jumped to 36% through the first three months of the year, significantly higher than its target of keeping it below 30%.
- Historic drop in oil prices
Due to the novel coronavirus (COVID-19), global oil demand has been low, but supply has been growing since oil producers around the world continue pumping crude.
Brent crude oil dived below the threshold of $20 per barrel last Tuesday. It fell to as low as $18.02 per barrel, marking its lowest level since February 2002, at 0935 GMT for a 29.27% daily loss after it closed last Monday at $25.48 a barrel.
WTI crude oil fell last Monday into negative territory for the first time in history. The price of WTI under the futures contract, which expired last Tuesday, fell to as low as -$37.63 by plummeting more than -290%, indicating that the massive oversupply against low demand is forcing suppliers to pay buyers to unload their inventory.
OPEC+ oil-producing nations agreed on April 12 to cut their total oil production starting from May 1 -- a decision that came a month late having previously met in Vienna, Austria on March 6.
The one-month delay to curb output, on top of implementing cuts from May 1 onwards, has left the global oil market with an excess of supply to add to the glut, which in turn has dramatically pushed down crude prices.
By Busranur Begcecanli