27th Feb 2008 13:00
BP PLC27 February 2008 February 27, 2008 BP CAN PUMP FOUR MILLION BARRELS A DAY UNTIL 2020, EVEN WITHOUT NEW FINDS BP replaced its annual production by 112 per cent in 2007, taking its provedreserves of oil and gas to 17.8 billion barrels. It also added some 2.4 billionnew barrels to its non-proved resource base which now stands at a further 42.1billion barrels of oil equivalent. Assuming a $60 oil price, the strength of this position - reinforced by recentaccess to new opportunities in Oman, Libya and Colombia, along with heavy oil inCanada - supports production potential of around 4.3 million barrels a day by2012, BP chief executive Tony Hayward said today. Highlighting key elements of the company's annual strategy presentation tofinancial analysts, Hayward said that in a $60 price world BP was confident notonly of boosting output over the next four years but of being able to sustainproduction of at least 4 million barrels a day until 2020 even with no newdiscoveries or access to new opportunities. "However, bearing in mind a rise in exploration spend to nearly $1 billion thisyear together with significant additions of fresh acreage in established areassuch as the deepwater Gulf of Mexico and a continuing drive to access newprovinces around the world, we expect to do better than this," Hayward said. In its downstream business he said the company now had a clear, step-by-stepplan to close the performance gap with rivals over the medium term, focusingspend on manufacturing over marketing and aiming for an improvement in pre-taxprofits of up to $4 billion within three to four years, assuming an averagerefining margin of $7.50 a barrel. He said BP expected to spend some $1.5 billion in Alternative Energy this year -a front-end acceleration of its longer-term $8 billion plan to build a newbusiness, based chiefly on solar, wind and biofuels and offering significantgrowth potential as world demand rose dramatically for low- or non-carbonenergy. "We intend to grow this business predominantly for its equity value," he said."Taking stock market valuations for similar companies, we estimate it is alreadyworth between $5 billion and $7 billion. As we go forward we will be looking athow best we can realise that growing value for our shareholders." Hayward said that since taking over as CEO ten months ago he and his senior teamhad conducted one of the most wide-ranging reviews of the BP Group's operationsin its recent history. They had now established a clear and focussed agenda foroperational recovery and long-term renewal which took pragmatic account of thechanging external environment, including continuing high oil prices. "We have slimmed the top team from six executive directors to four and the nexttier by more than 10 per cent. Across wider management we are reducing numbersby around 12-13 per cent. "As I said at our fourth quarter results, we aim to cut corporate overheads by15-20 per cent and eliminate some 5,000 posts worldwide over the next 18 months.Some 50 per cent of the reductions will result from streamlining our functions,40 per cent from refining and marketing and the remainder from exploration andproduction." He said the move of resources to the front line, the beefing-up of technicalexpertise through, for example, the recent recruitment of over 2,000 newengineers and senior operations managers, the establishment of proprietary BPtraining academies at MIT and a significant rise in technology spend this yearwere all aimed at delivering a strong improvement in the efficiency and safetyof operations across the Group. Hayward confirmed likely capital spend for this year at between $21 billion and$22 billion, up from $19 billion in 2007. Some $15 billion was earmarked forupstream, $5 billion for downstream and $1.5 billion for the other businesses,including Alternative Energy. Divestments were estimated at $1 billion. He saidthe rise reflected a mix of sector inflation and growth. Gearing would remain at20-30 per cent. He said that in the seven years since 2000 BP had distributed some $91 billionto shareholders, roughly half in dividends and half in share buybacks. Of theshare buybacks, some 85 per cent had been funded from divestments. The recent year-on-year 31 per cent dividend boost represented a shift in thebalance away from buybacks to dividends as a means of returning cash toshareholders. It reflected increased confidence in the likelihood of acontinuing higher oil price, as well as stronger gas prices and refining marginsthan have been the case historically. Exploration & Production chief executive Andy Inglis said BP had found a majornew reservoir below the Shah Deniz field in Azerbaijan, one of the largestdiscoveries in the world last year. Other big finds were made in Egypt, Angolaand the Gulf of Mexico. The company added 2.4 billion barrels to resources in 2007, boosting theresource base to 42.1 billion barrels. This combined with year-end reserves of17.8 billion barrels, took resources plus reserves to 60 billion barrels,extending the life of BP's production from 41 to 43 years at current rates. Inglis estimated 2008 upstream spend at $15 billion, or $17.5 billion includingBP's share of spending by TNK-BP and Pan American. This included a 50 per centrise in funding for research and development - in part to advance ten majortechnology projects, each with the potential to add 1 billion barrels of oilequivalent to reserves. He said BP expected to bring more than 25 new projectson stream between 2007 and 2009, and progress a further 30. TNK-BP chief executive Robert Dudley, also attending the presentation, said theRussian company had invested some $3.5 billion last year, excludingacquisitions. "In 2008, we expect this to rise to around $4 billion asinvestments in major projects and downstream increase. "We now have over $15 billion of new major projects in various stages and weexpect to see a production contribution from these post-2009. Therefore, in 2012we expect production to be around 1.9 million barrels a day." Dudley said that since the business was formed in 2004 it had paid the Russiangovernment over $68 billion in taxes, duties and excise. "Russia attracts muchcoverage," he said. "But the underlying picture for TNK-BP is one of aconsistent track record and delivery and an established presence as a respectedand successful Russian company. "We have a very strong resource position which we intend to maintain and producewith improved recovery rates in future. For these and other reasons, I amconfident our next five years can be as fruitful as these first." Iain Conn, chief executive of Refining and Marketing estimated the gap withrivals due to poor performance in BP's downstream business at $3.5-$4 billion ayear, assuming an average refining margin of $7.50 a barrel. He said plans werenow in place to reduce that by nearly half by end-2009 - chiefly from restoringand up-grading BP's refineries, including Texas City where remainingdistillation capacity would be back on stream in the coming weeks and most ofthe margin capability in place in the second quarter. The remainder of the shortfall, slated mainly for delivery in 2010-2011, wouldbe made up from business simplification in marketing - producing more rigorousinvestment choices, better margins and lower costs - and from significantlyreducing support costs and business services. Conn said he was cutting senior management jobs by 15 per cent and reducing thenumber of downstream business units from 40 to 15. Lubricants would move tothird-party distributors in some 20 countries and the aviation fuel businesswould pull out of 20 of the 100 countries where it operates. In Europe theintention would be to ultimately shrink the existing 80 business service centresto one. Globally, downstream job cuts would exceed 2,000, on top of 9,500 USpayroll staff moving to franchisees. Vivienne Cox, chief executive of Alternative Energy, said BP had invested some$1.5 billion in alternatives since the business was set up in 2005, with afurther $1.5 billion of spend planned for this year. The company had assembled alandbank sufficient to build 15 gigawatts of wind generation in the US,including Cedar Creek in Colorado, one of America's biggest wind farms, and morecapacity was planned for Europe, India and China. In Solar, sales of 800megawatts, and similar levels of production, were targeted by 2010. Cox said that, based on market assessments of similar companies and projects,the estimated value of BP's solar business was between $2.1 billion and $3.9billion and its wind business between $1.8 and $2.1 billion. Including thegas-fired power generation segment of the business, this gave Alternative Energya value of approximately $5-$7 billion. In conclusion, Tony Hayward said: "We have made significant progress at BP overthe past ten months, quietly and without fuss, in resetting essential context,in establishing sound, practical objectives and beginning to deliver them. "Our asset base is high-quality; our task - on which we are already vigorouslyin action - is to improve how it operates. We have a workforce which, as it isincreasingly freed of unnecessary complexity and overhead cost and given clearaims and accountability, will translate the operational momentum we are alreadyseeing in the first half of 2008 into steadily improving financial returnsthereafter." - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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