BP SETS FOCUS ON FINANCIAL GOALS, CORE ASSETS

Jan. 2, 1995
British Petroleum Co. plc has set a target to show $3 billion/year in profits by 1996, while earmarking almost an equal sum to pay off debts. BP Chief Executive David Simon told a meeting of analysts and fund managers in London his company is ready for its next step in a program begun in 1992 to refocus on hydrocarbons. After a management shakeup in 1992, it became apparent BP had overstretched itself through acquisitions in noncore businesses.

British Petroleum Co. plc has set a target to show $3 billion/year in profits by 1996, while earmarking almost an equal sum to pay off debts.

BP Chief Executive David Simon told a meeting of analysts and fund managers in London his company is ready for its next step in a program begun in 1992 to refocus on hydrocarbons.

After a management shakeup in 1992, it became apparent BP had overstretched itself through acquisitions in noncore businesses.

Then Simon became head of the company and set targets to reduce debt by $1 billion/year, achieve replacement cost profits of $2 billion/year, and keep capital outlay below $5 billion/year (OGJ, Mar. 22, 1993, p. 25).

Simon now expects to boost profits by $1 billion/year through improved technology and processes, higher volumes and yields, reduced interest payments on debt, and lower costs.

Capital outlay in 1994 is expected to be less than $4 billion. In 1995, spending will rise to $4.5 billion.

Outstanding debt stands at $10.8 billion, but Simon intends to reduce this to $8 billion in 1995, of which $500 million is expected to come from further divestments.

Simon said the $3 billion profits target can be achieved at current oil prices and margins, but not by 1996 if crude oil falls to $12-14/bbl.

"We believe, however, there is a fair chance of oil prices remaining around or above the current $16/bbl Brent level," Simon said.

"We consider it a realistic planning assumption, despite recent softening, based on pretty solid demand projections going forward and on continuing OPEC restraint."

BP's rate of return on capital was said to have come back into line with competitors' in 1994. Simon expects the return to keep growing to 13-14%.

UPSTREAM

John Browne, BP Exploration chief executive, told analysts the.company will replace production for 1994, two thirds from new discoveries and the rest from revisions and reengineering of existing fields.

The company's total production for 1994 is expected to amount to more than 500 million bbl of oil equivalent, while the Foinaven field discovery west of the Shetland Islands and finds at Milne Point, Alaska, are among those swelling the year's bookings of reserves.

"We are on track to replace reserves in 1994 with discoveries that have already been announced," Browne said. "We are confident we can maintain this performance in future years on the basis of discoveries that are under appraisal. Also, we expect to maintain a competitive finding and development cost for 1994 of about $4/bbl."

Browne said BP production is expected to grow 2%/year, including a 6%/year increase for gas, "...although there is scope to increase the growth rate if we can continue to achieve the improvement in performance which has been delivered over the past 5 years."

DOWNSTREAM

Russell Seal, BP Oil chief executive, cited eastern Europe and the Asia Pacific region as prime targets for downstream investment.

By 1997, Seal said, the company expects to have 150 retail sites in eastern Europe, including the former East Germany, the Czech Republic, Hungary, and Poland, providing 6% of BP's European retail sales.

Asia Pacific hotspots include Viet Nam, where BP is market leader in lubricants with 25% of the market, and China, where the company is developing a liquefied petroleum gas and aviation fuels business.

BP Chemicals has returned to profit despite unchanged margins on its key products through third quarter 1994, said Bryan Sanderson, chief executive of the chemicals division.

In the first 9 months of 1994, BP Chemicals returned a profit of 200 million, with return on capital of more than 10% in the third quarter.

By 1997, plant productivity is expected to rise by 50% compared with 1990, with plant reliability up 98%.

Sanderson said Asia is a major growth area for chemicals, with current sales of $600 million/year. New plants were completed or under way in Korea, Indonesia, and Malaysia.

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