Uchenna Izundu
International Editor
LONDON, Feb. 28 -- BP PLC expects to produce at least 4 million b/d of oil until 2020 even without new discoveries or access to new opportunities, the company's chief executive, Tony Hayward said on Feb. 27.
Hayward is confident that BP, which has fallen behind its peer group, can improve on these figures as it has invested up to $1 billion in exploration this year if oil prices fell to $60/bbl. During a presentation to financial analysts, Hayward said the company has proved reserves of 17.8 billion bbl having replaced its annual production by 112%. It also added some 2.4 billion new bbl to its nonproved resource base which now stands at a further 42.1 billion boe.
Assuming a $60/bbl oil price, the strength of this position—reinforced by recent access to new opportunities in Oman, Libya, and Colombia, along with heavy oil in Canada—supports production potential of around 4.3 million b/d by 2012, Hayward said.
In 2008, BP will spend $21-22 billion, up from $19 billion in 2007 because of sector inflation and growth. Some $15 billion was earmarked for upstream, $5 billion for downstream and $1.5 billion for the other businesses, including Alternative Energy.
In its downstream business he said the company now had a clear, step-by-step plan to close the performance gap with rivals over the medium term, focusing spend on manufacturing over marketing and aiming for an improvement in pre-tax profits of up to $4 billion within 3-4 years, assuming an average refining margin of $7.50/bbl.
Job losses
However, BP will shed 5,000 jobs over the next 18 months as it streamlines its operations to improve efficiency and cut costs.
"We have slimmed the top team from six executive directors to four and the next tier by more than 10%. Across wider management we are reducing numbers by around 12-13%," Hayward said.
BP's focus on safety follows accidents with its refinery in Texas City, Tex., and different pipelines last year. Bringing in over 2,000 new engineers and senior operations managers, and establishing proprietary BP training academies at Massachusetts Institute of Technology and a significant rise in technology spend this year will help to enhance its efficiency and operational safety.
Major finds for BP last year included a new reservoir below Shah Deniz field in Azerbaijan, Egypt, Angola, and the Gulf of Mexico helping the company to increase its resources by 2.4 billion bbl to resources 42.1 billion bbl. This combined with yearend reserves of 17.8 billion bbl, took resources plus reserves to 60 billion bbl, extending the life of BP's production to 43 years from 41 years at current rates.
Andy Inglis, BP's exploration and production chief executive, estimated 2008 upstream spend at $15 billion, or $17.5 billion, including BP's share of spending by TNK-BP and Pan American. Research and development will see a 50% rise in investment because it could add 1 billion boe to reserves. He said BP expected to bring more than 25 new projects on stream between 2007 and 2009, and progress a further 30.
In 2008 TNK-BP expects to invest $4 billion as major projects and downstream increase, up from $3.5 billion last year. Production is expected to reach 1.9 million b/d by 2012.
Refining outlook
Iain Conn, chief executive of refining and marketing, estimated the gap with rivals due to poor performance in BP's downstream business at $3.5-4 billion a year, assuming an average refining margin of $7.50/bbl. By 2009, BP is determined to slash the gap by half by restoring and upgrading its refineries, including Texas City where remaining distillation capacity would be back on stream in the coming weeks and most of the margin capability in place in the second quarter.
"The remainder of the shortfall, slated mainly for delivery in 2010-11, would be made up from business simplification in marketing—producing more rigorous investment choices, better margins, and lower costs—and from significantly reducing support costs and business services," BP said.
Senior management will be reduced by 15% and reducing the number of downstream business units from 40 to 15. In Europe the intention would be to ultimately shrink the existing 80 business service centres to one. Globally, downstream job cuts would exceed 2,000, on top of 9,500 US payroll staff moving to franchisees.
Contact Uchenna Izundu at [email protected].
