Jun 20, 2020

Once-bitten BP investors should be twice shy

All BP investors have to go on in the meantime is his preparatory work, the most significant of which has been this week's resetting of energy price assumptions and $12bn of debt raising. The industry-wide assumption of oil prices always rising was already accepted to be at least five years out of date. Harder to explain were the new valuations of existing fields, where future cash flow potential was calculated using the same oil price assumptions as exploration. In tandem with the oil reset, BP raised its long-term price estimate for carbon credits from $40 a tonne to $100, or about three times the current European benchmark level. "Equity [owners]. In the same way that marginal oil capital is being impaired as prior inflationary oil price views are reset to reality, exactly the same result will apply to new energy investment that is premised on a forecast that is wrong."

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