An optimistic outlook
BP says its global business is growing; mentions success and opportunities in Alaska
During BP’s earnings call for its fourth quarter 2017 results, company executives presented an upbeat message. The company is on track for bringing 800,000 barrels of new major production on line by 2020, said Bob Dudley, BP group chief executive. In 2017 the company’s exploration programs discovered around a billion barrels of new resource; reserves replacement ran to about 143 percent; and the company sanctioned new projects in Trinidad, India and the Gulf of Mexico.
Bernard Looney, BP chief executive upstream, praised the company’s Alaska team for maintaining oil production from the Prudhoe Bay field flat at a level of around 280,000 barrels per day for three years. The team’s ability to manage the gas and the field optimization provides a great example of what can be achieved, he said.
Looney also commented that the new tax rules under the Trump administration may make North Slope gas, currently a stranded asset, a more commercially viable proposition.
And, listed among growth options between now and 2025, came the Liberty field, offshore in the Beaufort Sea. BP is a working interest owner in the planned Liberty development, operated by Hilcorp Alaska.
The BP executives made no mention of the opening of the coastal plain of the Arctic National Wildlife Refuge for oil and gas leasing.
Three-element strategyDudley characterized BP’s company strategy as consisting of three elements: conducting safe, reliable and efficient operations; maintaining a distinctive portfolio that is fit for a changing world; and growing returns through value-based, disciplined investment and a focus on cost.
This comes in a situation where BP anticipates growing energy demand coupled with expectations for lower carbon emissions. BP expects most of that energy demand growth to come from emerging economies, especially India and China. But the rate of demand growth will slow in response to an increasing emphasis on energy sustainability and energy efficiency, BP expects.
In terms of energy supplies, natural gas production is growing faster than that of both oil and coal. Oil demand will continue for the next 20 years or so, before possibly leveling out. And renewables are growing faster than any other energy source, albeit from a low starting point.
Although the world will continue to need oil and gas to meet much of its energy demand for years into the future, BP has been committed to a low carbon transition for a long time, Dudley said. The company has been reducing its own emissions, improving its products to reduce their emissions, and complementing its portfolio with low-carbon businesses, he said.
Safety and efficiencyIn terms of the safety and efficiency of its operations, BP has seen a continuing downward trend of process safety events, Dudley said. The company is looking at how human behavior influences safety and is investigating the use of new technologies such as drones, crawlers and autonomous vehicles, to keep people out of harm’s way.
Addressing safety by these means brings the added benefits of lower operating costs and improved business performance: BP achieved an operational reliability level of 95 percent across its upstream and downstream businesses in 2017, Dudley said. The company has also been simplifying its work processes, creating an environment where people feel empowered to adapt and hence improve performance, he said.
Distinctive portfolioIn terms of maintaining a distinctive portfolio, BP has been evolving its business to enable flexibility in a changing world. In the upstream the company has been growing its natural gas portfolio while focusing on what it refers to as “advantaged oil,” oil resources that are low cost or high margin to produce. Including the company’s equity share of production in Russia, the company is producing about 3.6 million barrels of oil equivalent per day and has estimated reserves of 18.4 billion barrels of oil equivalent. The company currently has 13.7 years of reserve life, Dudley said.
In Russia, BP has a 19.75 percent shareholding in Rosneft and also has interests in three joint ventures.
In terms of energy diversity, the company has been moving back into the solar energy industry and now manages about 2 gigawatts of solar capacity.
The company’s downstream business is also strong and well differentiated, with strong brands, an increasing exposure to growth markets and geographically balanced refining, Dudley said.
Growing returnsWhen it comes to growing returns, the third prong of BP’s business strategy, the company is striving to simplify its business and reduce its costs, without compromising on safety, Dudley said. The company is also maintaining a tight discipline in its capital investments, setting strict investment hurdles in terms of required rates of return. Another strategy is to seek ways of optimizing the company’s portfolio by, for example, the merger of some assets with other companies. Beneficial partnerships with complementary businesses can also reduce costs
BP has been seeing its strategy start to deliver results. The company’s return on capital employed doubled to 5.8 percent in 2017 and is expected to exceed 10 percent by 2021, Dudley said.