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Building for the future BP’s John Browne says companies’ five new developments (Russia makes six) are analogous to North Sea, Alaska investments 30 years ago Kristen Nelson PNA Editor-in-Chief
BP used to be described as a company with two legs: Alaska's North Slope and the North Sea. That grew through the years — and through acquisitions — to seven legs, or profit centers.
The shape of the company is changing again as it develops five new profit centers — deepwater Gulf of Mexico, Trinidad, Angola, Azerbaijan and Asia-Pacific liquefied natural gas.
That change is positioning BP for the future, John Browne, BP p.l.c. group chief executive, said Feb. 11 at a company analyst presentation in London at which he also announced the company's partnership with the Alfa Group and Access-Renova in Russia (see page 9).
Browne said the five new profit centers are significant investments. Some are online already, contributing 20 percent of the company's production.
And by 2007, those five new profit centers are expected to account for 40 percent of BP's production.
“I cannot stress enough how important this moment is in the long history of BP,” Browne said.
“For us, this set of moves is analogous in terms of both capital and reserves to the development of the North Sea and Alaska 30 years ago. Over the next five years, more than 50 percent of the entire capital allocated for investment in the upstream is intended to go into these five new profit centers.”
After the acquisitions Browne said BP has been in “a phase of significant acquisitions and mergers” since 1999. “Now we're in a phase which is about making choices and about allocating capital and revenue investments to assets and markets based on their value potential and risk.”
BP's upstream strategy was put in place in 1989, Browne said, “and has been unchanged since then.”
It has four components: creation of new material profit centers; building the centers; maximizing productivity in existing profit centers; and divesting “activities which do not merit investment.”
The new profit centers the company is developing “are intended not only to renew BP for the medium term, but even more importantly, to give the company legs for the long-term future, because in most of these areas we estimate that there are as many reserves yet to be found as there are proven reserves under development,” Browne said.
Tony Hayward, BP's exploration and production chief executive, said the five new profit centers have a combined resource base of 15 billion barrels of oil equivalent and will take some $20 billion to develop.
Hayward said building profit centers it he second step: First BP creates them “by accessing the right basins.”
“Our objective is to have a disproportionate share of the world's of the world's largest and lowest-cost oil and gas fields,” he said.
All facilities needed for projected 2007 production levels from the new profit centers will be sanctioned and under construction this quarter, Hayward said, with $20 billion in investment expected between 2003 and 2007, more than 50 percent of upstream capital over that time period.
Producing profit centers The company has seven existing profit centers.
“Three of these — the North Sea, Alaska and North America gas — make up almost 80 percent of our production,” Hayward said, with the remainder coming from Egypt, the Middle East, Asia-Pacific domestic and South America.
Existing profit centers are managed for cash flow and returns. Focus is on “maximizing the economic flow of barrels through the system, replacing reserves consistent with field depletion plans.” Barrels are developed “with a strong focus on capital productivity: making tough choices to put scarce resources to their best use and thereby avoiding over investment,” he said.
BP also operates “with a goal of having best-in-class cost in every basin in which we operate.”
Replacement goal for North Slope BP has produced on the North Slope for 25 years and in 2002 the company's “proved developed reserve replacement was 150 percent,” Hayward said. He called it a “great result for a mature area” and said BP is continuing to develop the main reservoir at Prudhoe Bay as well as bringing on that fields' satellites.
Since the ARCO acquisition, when Prudhoe Bay ownership was aligned, BP has replaced more than 100 percent of its reserves on the North Slope, he said.
Over all existing profit centers the rate of reserve replacement has been more than 80 percent, he said. “And we anticipate that this level of replacement will continue into the foreseeable future. This underpins a forward-looking decline rate of around 3 percent.”
Hayward said BP is “very happy with the overall scale of the Alaskan business today” and expects production to continue at around 320,000 barrels a day or so “over the next four or five years, with a very focused activity set.”
He credited alignment with satellite and infield drilling success since the alignment.
The company's strategic plan for Alaska, Hayward said, “is to continue at the current levels (with) a very focused activity set, driving operating cots and capital efficiency, whilst we await for the development of the Alaskan gas resource, which we are confident will happen but it will take sometime for it to arrive.”
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