BP PLC intends to maintain its existing financial frame through the 5 years to 2021, with organic capital expenditure kept $15-17 billion/year (OGJ Online, Feb. 7, 2017).
“Last year we delivered our targeted $7 billion reduction in cash costs a year early, and capital spending was $8.6 billion lower than its peak in 2013 without damaging our growth pipeline,” said Brian Gilvary, BP chief financial officer. “We will continue that tight focus on costs and capital discipline and seek further improvements throughout the group.
“We expect this combination of continued cost discipline with the growing cash flow from our core businesses—and the recent portfolio additions—will steadily drive down the cash balance point of the business,” he said. “Over the next 5 years we expect this to fall to around $35-40/bbl for the group overall.”
Volume and margin growth throughout BP’s businesses are expected to increase returns over the next 5 years. Assuming a stable price environment and portfolio, BP now expects return on average capital employed for the group to recover steadily over the next few years and to be more than 10% by 2021.
Steady upstream output growth
BP expects to bring online seven upstream projects during 2017, making it one of the largest years for commissioning new projects in the company’s history. Another nine projects that are expected to start up through 2018-21 are already under construction.
The projects coming online in 2016-17 are on track to provide 500,000 boe/d of new production capacity by yearend. The new upstream projects remain on track to bring 800,000 boe/d of new production by 2020. On average, the new projects are also expected to have operating cash margins 35% higher than the average of BP’s upstream portfolio in 2015.
More than 200,000 boe/d of production is expected by the end of the decade from the recent additions to BP’s portfolio, primarily from Onshore Petroleum Operations Ltd.’s (ADCO) onshore oil concession onshore concession where the BP was awarded 10% interest in December 2016 (OGJ Online, Dec. 19, 2016).
BP is now confident its upstream production will increase from 2016 by 5%/year to 2021. BP Group production, including BP’s share of production from Rosneft PJSC, is expected to be about 4 million boe/d by 2021.
The firm estimates its upstream segment will generate $13-14 billion of pretax free cash flow by 2021 at oil prices around $55/bbl.
BP’s downstream segment, meanwhile, has undergone $3 billion in cash cost reductions since 2014, halving the refining margin needed for the segment to deliver a pretax return of 15%. Underlying earnings from the manufacturing businesses in 2021 are expected to be $2.5 billion higher than in 2014.
Combined with the ongoing focus on simplification and efficiency throughout the segment, BP believes the growth will enable its downstream segment to provide $9-10 billion of pretax free cash flow by 2021, with returns of around 20% in 2021.