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The certainties of life

Written by Tom Gillingham, associate partner
Edited by Kevin Pringle, partner
16 June 2020

Good morning,

In this line of work, nothing can be said to be certain except tracked changes, the fact the worst journalist calls are always last thing on a Friday afternoon, and that BP will always make headlines.
 
Yesterday, the oil major revised down its 2021-2050 price assumptions from $75 per barrel of Brent crude to $55 per barrel. This change attracted significant attention as it will cost the company an eye-watering £14bn in write-downs and charges – potentially leading to a cut in its FTSE-leading dividend.
 
But even more interestingly, BP says this new price reality could actually accelerate its plans to move to a net-zero carbon footprint by 2050, going beyond the ambitions it already spelt out in February this year.
 
Just over ten years ago, the company dominated the headlines for different reasons. The April 2010 Deepwater Horizon oil spill killed 11 people and created an unprecedented ecological disaster in the Gulf of Mexico. As I started my career, that clip of then CEO Tony Hayward just wanting his life back was everywhere. His response became every media-trainer’s go-to don’t-do clip.
 
Bookending a turbulent decade, these two very different stories feel like decisive moments for an industry that has never been far from criticism. BP is only one player, but its decisions clearly impact the oil and gas sector as a whole.
 
After Deepwater Horizon, I worked with the joint industry project team that was convened to come up with a solution to catastrophic well-control incidents of this type.  In just over two years, impossible engineering challenges were overcome to design, develop and deliver four globally deployable ‘capping stacks’, providing new capacity to respond swiftly to a subsea well incident.
 
Having seen the industry cooperate to solve this huge challenge first-hand, it feels like the Covid-19 pandemic could yet spark a similarly unprecedented effort in meeting the complex and critically important issue of energy transition.
 
Of course, it shouldn’t take a ‘black swan’ incident like Deepwater Horizon or Covid-19 to provoke decisive action. Yet these moments do have a unique ability to unlock previously inflexible budgets, to change mindsets, or even to allow leaders to say the things that would previously have been unimaginable.
 
There are plenty of good reasons why oil and gas companies can be cast as the bad guys in the climate debate, but to do so is simplistic and potentially counterproductive. If their resources can be deployed in the right way, these companies could be vitally important in affecting the structural changes required in our energy system.  
 
As we get to grips with what is likely to be a deep and painful Covid recession, pushing for an abrupt ‘no deal’ exit from the carbon intensive parts of our economy seems more foolhardy than ever; but if companies like BP are already willing to use this crisis to reframe operations, there can be a middle way. 
 
In ten years’ time, I suspect the constant of BP leading the news will continue. But having seen what can be achieved when the pressure is on, here’s hoping the headlines are about stunning achievements on the path towards net-zero. To end, I’ll quote Benjamin Franklin properly this time – “You may delay, but time will not.”

News

Senior Conservative MPs have continued to publicly urge Boris Johnson to cut the 2-metre distancing rule in England immediately, despite the government having already announced a review of the measure. The call echoes requests from trade bodies like UK Hospitality and the British Beer and Pub Association. Calls for the rule to be reviewed have also been made to Nicola Sturgeon in Scotland.
 
There is tentative optimism that the UK and the EU could reach a deal over their future relationship. An hour-long video call on Monday between Boris Johnson and the bloc’s leadership has injected fresh momentum into the previously stalled negotiations, according to insiders. The EU believes that Johnson is willing to soften his position and European officials told him they are ready to do the same.
 
A report by the National Foundation for Educational Research (NFER) has found that head teachers believe around a third of pupils are not engaging with set classwork. It also found that 90% of teachers say their pupils are doing less or much less work than they would normally at this time of the year.

Business and economy

According to the ONS, number of workers on UK payrolls fell by more than 600,000 in the three months to May, underlining the dramatic effects of lockdown on the UK economy. Economists have warned that the virus’s full impact on UK employment will not be fully understood until wage support schemes end in October.
 
More than a thousand contractor and agency jobs will be cut at Jaguar Land Rover’s facilities in the West Midlands after the carmaker recorded a £501m pre-tax loss in the first three months of the year. The company employs around 33,000 people in Britain and had previously been on track to make a profit in its last financial year. (£)
 
Tesla has announced it will buy cobalt from Glencore for use in two new car plants in Shanghai and Berlin. The move increases Tesla’s reliance on supplies from the Democratic Republic of the Congo – the rare earth metal has soared in price recently due to it being a key component of lithium-ion batteries, the usual power source for electric vehicles. (£)

Columns of note

Writing in The Times, Rachel Sylvester argues that Keir Starmer should build on encouraging signs to cement the apparent early gains he has made in improving public perceptions of the Labour Party. She says that success still isn’t guaranteed in a future election due to the huge challenge of regaining lost seats in Scotland and in the north of England, but that he has already gone a long way to restoring Labour’s “heart”. (£)
 
Writing in the Guardian, the ‘Secret Barrister’ bemoans the state of the justice system, and highlights that despite current concerns MPs seem to be prioritising legislation to protect statues, at the cost of reforms that are urgently needed.

Cartoon source:The Times

Markets

What happened yesterday?

London’s FTSE 100 ended down slightly on Monday, despite non-essential shops in England opening for the first time since lockdown. At the end of trading it had fallen 0.66% at 6,064.70, amidst persistent concerns about a second Covid-19 infection wave. Sterling fared better, rising 0.21% against the dollar to $1.26, and pushing up by 0.07% on the euro, to €1.12.
 
In the US, the Dow Jones Industrial Average finished 0.62% up at 25,763.16, while the S&P 500 rose by 0.83%, to 3,066.59. Despite negative production data from China, an announcement from the Federal Reserve that it would aim to purchase individual corporate bonds was enough to improve confidence as the day wore on.

What’s happening today?

Finals
Ashtead Group
Braemar Shipping
Checkit CKT
Tatton Asset Management
Telecom Plus

AGMs
Altus Strategic
Andrew Sykes
Arbuthnot
Br.small Co.2
Clearstar Di
Coca-
Concurrent Technologies
Epwin Grp
Evraz
FDM Group
Osirium Tech
Serabi  SRB

UK economic announcements
(07:00) Unemployment Rate
(07:00) Claimant Count Rate
(08:30) Claimant Count Rate

Int. economic announcements
(07:00) Consumer Price Index (GER)
(10:00) ZEW Survey (GER) – Economic Sentiment
(10:00) ZEW Survey (GER) – Current Situation
(10:00) ZEW Survey (EU) – Economic Sentiment
(13:30) Retail Sales (US)
(14:15) Industrial Production (US)
(14:15) Capacity Utilisation (US)
(15:00) Business Inventories (US)

Source: Financial Times

did you know

After his brother founded a newspaper called the New England Courant, 16-year-old Benjamin Franklin began secretly submitting commentary as “Silence Dogood,” a fictitious widow who offered homespun musings on everything from fashion and marriage to women’s rights and religion.

Parliamentary highlights

House of Commons

Oral questions
Business, Energy and Industrial Strategy (including Topical Questions)

House of Lords 

Oral questions
Publishing the social housing White Paper – Baroness Sanderson of Welton
 
Oral questions
Reviewing the Government’s manifesto commitments as a result of the Covid-19 pandemic – Lord Young of Cookham
 
Oral questions
Government response to ‘The mental health effects of the first two months of lockdown and social distancing during the Covid-19 pandemic in the UK’ report by the Institute for Fiscal Studies – Baroness Tyler of Enfield

Scottish Parliament 

Scottish government debate
Fiscal implications of Covid-19
 
Legislative consent motion
Corporate insolvency and governance bill

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