European Big Oil is transforming into Big Energy, but where are the Canadian majors?

“Big picture, we see this as another step in the re-rating of oil and gas, and the journey from Big Oil to Big Energy.” – Wood Mckenzie

International consulting giant Wood Mckenzie issued a press release (copied below) Monday about BP’s write-down of as much as $17.5 billion of its assets, part of the UK-based company’s gradual exit from oil and gas. Energy. Jeremy McCrae says the trend started in Europe and is now picking up steam in North America. Are Canada’s big oil companies also transitioning from Big Oil to Big Energy?

BP press release

Speaking after BP announced it will write down as much as $17.5 billion on the value of its assets when it reports its second-quarter results, Luke Parker, vice president, corporate analysis, at Wood Mackenzie, said: “The impairment shouldn’t come as a big surprise. The risks were clearly flagged in BP’s 2019 annual report.

“While these are non-cash charges, with no bearing on cash flows, the implications – near-term and long-term – are very real.

“In the near-term, the impact of a US$17.5 billion write-down on shareholders equity would push BP’s gearing ratio to 45% (including lease liabilities, 41% excluding). A US$13 billion write-down would push these figures to 44% and 40% respectively. This is uncomfortably high.

“Greater urgency to pay down debt will put further pressure on the dividend. Of course, under BP’s latest price assumptions, cash generation will be less than previously anticipated.

“In the longer term, this is about BP’s strategic shift away from oil and gas. While that will be a multi-decade affair, BP is already getting to grips with the idea that its upstream assets are worth less than it believed as recently as six months ago. Indeed, some of them are worth nothing.

“Big picture, we see this as another step in the re-rating of oil and gas, and the journey from Big Oil to Big Energy. BP is working through the detail of the ‘reimagine’ strategy that it unveiled in February. That will be presented in September, and will provide a much clearer picture of BP’s plans for capital allocation and cashflow generation as it makes the transition to net-zero.”

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