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CFO: BP 'Actively Drilling' in GOM Later This Year

BP plc's financial chief said Wednesday he's optimistic that the company will get back to business in the Gulf of Mexico (GOM) by the second half of this year.

CFO Byron Grote expressed his optimism about the oil major's reentry to the GOM during a conference call with financial analysts. The Bureau of Ocean Energy Management, Regulation and Enforcement to date this year has issued 10 new permits to drill in the GOM.

BP was the biggest producer in the GOM before the Deepwater Horizon disaster last April, with output of around 433,000 b/d, and company officials are awaiting permit approvals like their peers. BP's GOM output has fallen by an estimated 100,000 b/d year/year (y/y) because of the deepwater drilling moratorium.

"We, like everybody else, are watching the progressing of the permitting process," Grote told analysts. "We expect it to be done in an orderly fashion, with due process exhibited by regulatory authorities as appropriate in this situation...Irrespective of permitting, we have a number of things we want to do to make sure we have it right before proceeding in the Gulf of Mexico...It's a combination of getting permits...and to be in an appropriate position to do all of our activities safely...managing risks...

"We expect to be back and actively drilling during the second half of the year."

Fergus MacLeod, head of Investor Relations, said he couldn't comment on the details of BP's permit filings, but "we have distinct criteria for the restart," which includes stringent safety and risk management procedures put in place by the company following an internal review. "We are addressing each of our own recommendations, ensuring we have the right capabilities in place...appropriate management of contractors..." Earlier this year CEO Bob Dudley said BP's new focus would be on values over volumes (see Daily GPI, Feb. 2).

"This gives you some sense of what we intend to do, but the outcome depends on the regulatory process," MacLeod said. "Also, we are a partner in some permits that have been issued...so in terms of nonoperated activity, that's already under way."

To bolster its bottom line, BP put $30 billion in assets up for sale with a plan to complete the divestments by the end of this year. To date about $24 billion of assets have been sold or announced. The company also had paid $5.6 billion in claims and government payments at the end of the first quarter.

Grote said he couldn't comment on the precarious alliance with OAO Rosneft to explore Russia's Arctic. The companies announced a strategic agreement to swap shares; the deadline to complete the agreement was extended to May 16.

"As I hope is clear, BP is in the midst of major change as we work to reset the focus of the company and begin the task of rebuilding long-term sustainable value for our shareholders," said Grote. "We are keenly aware of the loss of value that has occurred over the last year, and how deeply discounted we are today relative to both the value of our assets and our financial performance versus our peers.

"We are committed to recovering that lost value, both by delivering sustainable long-term performance and by addressing the uncertainties that we face in the U.S., Russia and elsewhere."

The past year, he noted, had been a "truly challenging period for BP, but we have made considerable progress in resetting the foundations for the firm. Nonetheless, we have much more to do."

BP reported a profit of $7.1 billion in 1Q2011, up $1 billion from the year-ago period. However, replacement cost profits, which strip out gains or losses from inventories and other nonoperating items, slipped to $5.5 billion from $5.6 billion. The company took an additional $400 million charge in the latest quarter related to last year's oil spill, which is on top of the $41 billion already written off related to liabilities. Because of asset sales and high oil prices, revenue jumped almost 19% y/y to $88.3 billion from $74.42 billion.

Production in the quarter totaled 3.58 million boe/d, which is 11% lower than in the year-ago period. However, after accounting for asset sales, BP's output fell 7% y/y.

BP expects 2Q2011 production "to reflect the continued impact on operations in the Gulf of Mexico following the drilling moratorium, the impact of acquisitions and divestments, and the seasonal ramp-up in turnaround activity, which is expected to be higher than in 2010."

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