Dash any rumors that BP plc is stalking cash-distressed independents. Now's not the time, CEO Tony Hayward said last week.
Speaking to financial analysts about BP's 4Q2008 performance and prospects in 2009, Hayward quashed rumors that BP wanted to buy a U.S.-based independent, such as its joint venture partner of late, Chesapeake Energy Corp. (see NGI, Dec. 1, 2008).
"I'm not certain that the industrial logic is terribly compelling" for a mega-merger because it would not increase the companies' combined resource base, Hayward said. A better fit, he told analysts, would be a merger between a technologically savvy major and a resource-rich national oil company. Otherwise, producers need to build from the ground up -- not out.
"The challenge for all of us today is to continue to capture resource to enable us to grow," Hayward said. "The future has not been canceled, it's been delayed for a few years. It's a great time for the industry to get its costs straight, get back in shape and begin investing for purpose in the future."
BP began a huge makeover last year that resulted in around 3,000 job losses. The company now expects to exceed its original target of 5,000 staff reductions by the middle of this year.
"We have made good progress in slimming and simplifying the organization while at the same time strengthening the front line, but we're not being complacent," said Hayward. "In the current climate we especially need to maintain the momentum we have established in the drive to make BP more efficient. The mantra in BP today is: 'Every dollar counts, every seat counts.'"
Reflecting the slump in commodity pries, BP reported a 4Q2008 net loss of $3.34 billion, compared with a profit of $4.4 billion in 4Q2007. BP also reports replacement cost profits, which strips out the value of inventories. BP's replacement cost profits were down 24% at $2.6 billion quarter/quarter.
Full-year net profit was $21.2 billion, and replacement cost profit rose to $25.6 billion -- up 39% from 2007. However, in the deteriorating economic climate, Hayward said he didn't see "the record financial performance being repeated for some time."
A key measure, BP's operating cash flow, was up to $5.6 billion in 4Q2008 from $4.26 billion in 4Q2007. That points to BP's underlying financial and operating performance "continuing to show powerful recovery," the CEO said.
"We have established very strong momentum in 2008 in our drive to strip out overhead costs and to make BP simpler and more efficient," said Hayward. "There will be no let-up in that momentum, which gives me great confidence that we are well positioned for the challenge of the next few years."
In key strategic areas too, BP delivered strong performance, with significant new access in North America in particular, Hayward noted. "The year was one of the best in the last decade for exploration," he said. That success "will enable us to achieve a resource-to-production replacement ratio of more than 200% and reserves replacement of over 100%."
Another positive was BP's ability to reduce costs. Cash costs fell in the final three months of 2008, despite higher energy bills and inflation in the industry that was running at 15% in mid-2008, Hayward noted.
BP has set a capital spending program this year of between $20 billion and $22 billion in 2009. In any case, the CEO said BP's oil and gas output will grow. "Exactly how much will depend on OPEC constraints, along with the oil price and its impact on production-sharing contracts..."
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