BP plc, experienced in handling financial crises following the Macondo well blowout, is moving rapidly to shore up the balance sheet because "this feels like 1986 to me," Group CEO Bob Dudley said Tuesday.

BP now is working on a “new normal,” i.e., that oil prices won't be higher than $50.00/bbl this year -- and possibly two or three years down the road, Dudley said during a two hour-plus conference call to discuss the 2015 outlook and last year's results. BP banks its exploration and production returns on a benchmark of $80.00/bbl crude. Projects are stress-tested at $60.00.

"We have now entered a new and challenging phase of low oil prices through the near and medium term," Dudley said. BP now is being "reset...for the new reality of lower prices."

The mid-1980s battered the oil and gas industry, real estate markets and banks, leaving thousands of people out of work. The Texas economy was upended and Houston's economy was shattered, with hundreds of businesses closed and people out of work. Asked to clarify his remarks, Dudley doubled down.

"At times, it reminds me a little bit of 1986 in terms of the potential for this to be an extended downturn...I think any time the price of oil drops 60%, it's not a correction, it's something different."

BP's view is more bearish than that expressed in recent quarterly conference calls by ExxonMobil Corp., Royal Dutch Shell plc and Chevron Corp. (see Daily GPI, Feb. 2; Jan. 30; Jan. 29). ExxonMobil even added five oil rigs to its U.S. onshore program in 4Q2014.

"In terms of the bearish outlook, it's more a function of looking at supply and demand, and we have an excess of supply," Dudley said. "Certainly, U.S. oil production is not going to adjust overnight to change the price. We see oil production continuing to increase in the U.S. at least through the summer, even though rigs are dropping very fast...when we have that much in storage out there, it's going to take a long time to work that off."

China, one of the big targets for new production, "is growing, but the rate of growth is off, and the growth in demand is off," he noted. The oversupply picture and the drop in demand worldwide is what harkens back to 1986, he said.

"Geopolitics could go the other way, and there's a lot of chatter around the world on agreements with Iran, and that's a negative price signal. We've quickly got to be ready for that, without sacrificing...I'm not going to compromise on safety or training on hazardous jobs or ethic commitments..." But the facts are what they are, said Dudley.

For 2015, capital expenditure (capex) has been cut to $20 billion, down from an original plan of $23-26 billion. Capex in 2014 was $22.9 billion. Some final investment decisions scheduled to be made this year could be delayed, upstream chief Lamar McKay told analysts. Among them is the Mad Dog facility in the deepwater Gulf of Mexico (GOM). Other projects, such as those involving partners, would require negotiations.

Still on schedule, however, is separating the Lower 48 business as a standalone operating unit, McKay said.

"We expect faster decisionmaking, more innovation, and we expect cash costs to come down 25%." Plans are to report Lower 48 earnings separately. "We are continuing as we hoped and expected in the Lower 48...and we are reacting to the environment as our competitors are...We don't have as high a level of activity as others...but we are working like our competitors in that each and every dollar spent is the right dollar spent."

McKay was hesitant about offering an outlook on the Lower 48 operations in 2015. He confirmed that 900 people have lost their jobs and the squeeze is on the ensure all cost efficiencies that can be made are being made.

BP is the largest North American natural gas marketer, but most of the production growth in recent years has been from the GOM. However, McKay said BP could boost its natural gas activity this year in the onshore, but overall, 2015 is start of "a very challenging phase," he said.

BP is able to move its exploration spending "sideways," by deferring high-grading of projects or moving some into the execution phase, McKay explained. "We also are looking at optimizing pre-drill expenses, the tempo by which we get drilling done over the next several years...We are making changes to every one of our categories to be as efficient as we can be, and we are examining each and every dollar..."

Quarterly production, including the stake in Russia's OAO Rosneft, fell slightly year/year to 3.21 million boe/d from 3.23 million boe/d. Excluding Rosneft, production was 2.3% higher than a year earlier. For the year, BP produced 31.5 million boe/d, versus 323 million boe/d.

Underlying replacement costs, comparable to U.S. net earnings, were down 18% to $2.2 billion (12.3 cents/share) in 4Q2014 from $2.8 billion (15 cents). Full-year profit was $12.1 billion, compared with $13.4 billion in 2013. In the final period of 2014, BP took a $3.6 billion charge on impairments of to upstream assets, reflecting the impact of lower oil prices. revisions to reserves and other factors. Including the charge and other effects, BP reported a replacement cost loss of $969 million in the period.

Dudley briefly reviewed the Macondo well blowout litigation, which continues. The penalty phase of the multi-district litigation 2179 trial is under way in New Orleans, the third of three steps to determine the amount of penalties under the U.S. Clean Water Act. Following the first trial phase, the court found BP was grossly negligent and committed willful misconduct, which the company has appealed. In phase two, the court ruled that 3.18 million bbl of oil were spilled into the GOM following the incident but it found no gross negligence in BP's source control efforts.

"As we have said before, we will pursue fair outcomes in all legal matters, while protecting the best interests of you, our shareholders, at all times," Dudley said. "Further to the recent decision of the U.S. Supreme Court not to hear BP’s appeal on the issue of causation in relation to business economic loss claims, we have a responsibility to continue to contest what we believe to be unfounded claims. I should also point out that the deadline for submission of any further economic loss claims has now been set for June 8 of this year."