MOSCOW (MRC) -- BP says it will reduce its operating costs by USD2.5 billion in 2021 and cut close to 10,000 jobs, mostly before the end of this year, due to the collapse in oil demand because of COVID-19 and as part of its strategy to become a lower-carbon company, said Chemweek.
The UK major in early April announced a cut of around 25%, approximately USD2.5 billion, in its planned capital expenditure (capex) to USD12.0 billion for 2020. BP’s CEO Bernard Looney now says those capex cuts will total around USD3.0 billion. It will also now reduce its operating costs, currently USD22 billion, by USD2.5 billion. The company has not specified any specific business divisions that will be affected.
“It was always part of the plan to make BP a leaner, faster-moving and lower-carbon company. That is how we will deliver on our net zero ambition. And that is how we will seize opportunities throughout the energy transition. Then the COVID-19 pandemic took hold,” he says. Flagging the widespread economic fallout of the pandemic, Looney says the oil price has plunged “well below the level we need to turn a profit. We are spending much, much more than we make – I am talking millions of dollars, every day.” The company’s net debt rose by USD6 billion in the first quarter of this year as a result, he says, adding, “We have to spend less money.”
The previously flagged 25% cut in capex for this year is a reduction of “around USD3 billion,” but it “currently costs around USD22 billion a year to run the company—of which around USD8 billion is people costs,” says Looney. The company will reduce those operating costs by USD2.5 billion in 2021, he says, “and we will likely have to go even further."
BP introduced a three-month freeze on redundancies in March, a moratorium that ended today, 8 June. “We will now begin a process that will see close to 10,000 people leaving BP—most by the end of this year,” adds Looney, who took on the role as CEO in February. The majority of those affected, around 15% of its worldwide workforce, will be in office-based jobs and not in its retail business, according to the company. BP employs around 15,000 people in the UK and over 70,000 worldwide.
The statement by Looney also says the company will give no pay rises to senior employees and group leaders until March 2021 and that employees should not factor any cash bonuses into their financial plans this year. Pay raises will be reintroduced for less-senior employees as of 1 October. BP announced a round of senior management appointments last month that halved the size of its leadership team as part of Looney’s plans to reshape the company’s structure, with the company looking to reduce the number of group leaders “by around one third.”
“To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP. While the external environment is driving us to move faster—and perhaps go deeper at this stage than we originally intended—the direction of travel remains the same,” Looney says. The moves will “help strengthen our finances” and help create a more competitive company, he adds.
In April BP reported a 61% fall in its first-quarter petrochemical earnings to USD65 million from USD169 million a year earlier on an underlying replacement-cost (RC) basis before interest and tax, while group underlying RC profit before interest and tax plunged 50% YOY to USD2.39 billion. The price of Brent crude declined 74% during the first quarter. The energy industry had been “hit by supply and demand shocks on a scale never seen before,” Looney said at the time, adding that it would take decisive actions to strengthen its finances.
As MRC informed before, BP has entered into an agreement to license its latest generation technology for the production of purified terephthalic acid (PTA) to China’s Dongying Weilian Chemical Co., Ltd. Weilian Chemical is a subsidiary of Dongying United Petrochemical Co., Ltd, one of the leading manufacturers and distributors of petroleum and petrochemical products in China. Weilian Chemical intends to build a 2.5 million tonnes per annum PTA production unit at the Dongying Port Economic Development Zone in eastern Shandong province, adding to Dongying United Petrochemical’s existing refineries and paraxylene (PX) facilities portfolio.
PTA is used to produce polyethylene terephthalate (PET), which, in its turn, is used in the manufacturing of plastic bottles, films, packaging containers, in the textile and food industries.
According to MRC's ScanPlast report, April total estimated PET consumption virtually did not change year on year, totalling 60,840 tonnes (in April 2019 - 60,980 tonnes). 235,160 tonnes of PET chips were processed in Russia in January-April 2020.
BP is one of the world's leading international oil and gas companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items.