BP’s disposal losses and impairments

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Executive Summary

There has been some commentary that BP’s announced $4-5 billion impairments “primarily related to transition businesses”^[1] means the company’s foray into renewables has been a driver of sustained poor financial performance^[2], justifying the company's strategic pivot back to oil and gas.

While a $5 billion impairment is material, it represents <10% of BP’s disposal losses and impairments^[3] since 2020. Based on our analysis, 75% of disposal losses and impairments since 2020 are against oil and gas assets.

This analysis is consistent with our previous research^[4] showing that value in the oil and gas sector has been materially eroded by its upstream investments:

• Most of the itemised impairments relate to projects exceeding cost and schedule estimates.
• Material impairments in multiple emerging markets (Russia, Mauritania and Senegal, and Trinidad) indicate difficulties in managing emerging markets risk.

From the perspective of disposal losses and impairments, the new transition ventures have not performed materially worse compared to the legacy business. They have been responsible for 7.5 - 12.4% of disposal losses and impairments and 7.2% of capex between 2020 and 2025.

Investors have good reason to question how the company plans to manage both capex and emerging market risks in the upstream business, as part of its 'fundamentally reset strategy' that will see it increasing upstream capex by 17%.