BP will write off up to $17.5 billion from the value of its assets after cutting its long-term oil and gas price forecasts, betting the COVID-19 crisis will cast a lasting chill on energy demand and accelerate a shift away from fossil fuels.

Like its rivals, the British oil major is set to take a big hit to revenue from an unprecedented collapse in oil demand due to the pandemic. The impairments are set to raise its debt burden sharply and increase pressure to reduce its dividend.

The move comes as CEO Bernard Looney prepares to outline his strategy in September to “reinvent” BP including a reduced focus on oil and gas and a larger renewables business.

BP lowered its benchmark Brent oil price forecasts to an average of $55 per barrel until 2050, down by around 30% from previous assumptions of $70.

The outlook is the lowest among Europe’s top energy companies, according to Barclays research.

Review of Projects

BP said the aftermath of the new coronavirus pandemic would accelerate the transition to a lower-carbon economy, in line with the goals of the 2015 Paris climate agreement.

“We have reset our price outlook to reflect that impact and the likelihood of greater efforts to ‘build back better’ towards a Paris-consistent world,” Looney added.

BP shares were down 4.1% at 09:12 GMT.

Last week, BP said it would cut about 15% of its workforce in response to the coronavirus crisis and as part of Looney's strategy.

BP said the new price assumptions will lead to non-cash impairment charges and write-offs in second-quarter earnings, due Aug. 4, in a range of $13 billion to $17.5 billion after tax. It said it would also now review its plans for some oil and gas projects that are at early exploration stages.

BP is set to increasingly shift its fossil fuel production from oil to natural gas, which is expected to play a key role in supplying growing demand for electricity.

However, in its new outlook, BP revised down its assumption for gas from Henry Hub in the United States by 31% to $2.90 per million British thermal units.

It also increased the assumed price it will have to pay governments for CO2 emitted from its oil and gas activities to $100 per tonne of CO2 in 2030, from $40.

Debt and Dividend

The large impairment relates mostly to oil and gas exploration assets and will lower BP’s asset value by about 10%, pushing the ratio of equity to debt, known as gearing, to about 48% in the second quarter, RBC Capital Markets said in a note.

At such levels, the company will need to lower its dividend, the bank said.

Investors have increased pressure on oil companies to lower carbon emissions to net zero by the end of the century. BP and its European rivals have in recent months outlined plans to sharply reduce their emissions by 2050, although how exactly they will get there remains unclear.

Charlie Kronick, senior climate adviser for Greenpeace UK, said BP’s price revision was “long overdue.”

“Accelerating the switch to renewable energy will be vital not only to the climate but to any oil company hoping to survive in a zero carbon future,” he added.