BP plc replaced 112% of its annual production in 2007, building its proved reserves of oil and gas to 17.8 billion boe, the company reported Wednesday. It also added about 2.4 billion new barrels to its nonproved resource base, which now stands at 42.1 billion boe.
Combined with year-end reserves, BP's estimated resources plus reserves total about 60 billion boe, which would extend the company's production to 43 years from 41 years at current rates.
Assuming a $60/bbl oil price, the strength of this position -- reinforced by recent access to new opportunities around the world -- supports production potential of around 4.3 million boe/d by 2012, BP CEO Tony Hayward told financial analysts in London. He also highlighted key elements of the company's strategy and said that in a "$60 price world" BP was confident not only of boosting output over the next four years but of being able to sustain production of at least 4 million boe/d until 2020 -- even with no new discoveries or access to new opportunities.
"However, bearing in mind a rise in exploration spend to nearly $1 billion this year together with significant additions of fresh acreage in established areas such as the deepwater Gulf of Mexico and a continuing drive to access new provinces around the world, we expect to do better than this," Hayward said.
Exploration & Production CEO Andy Inglis said BP discovered a major new reservoir below the Shah Deniz field in Azerbaijan, one of the largest finds in the world last year. Other big finds were made in Egypt, Angola and the Gulf of Mexico. BP expects to bring more than 25 new projects onstream between 2007 and 2009, and to make progress on another 30 projects.
Hayward, who took the reins of BP 10 months ago, said the company had made "significant progress...quietly and without fuss, in resetting essential context, in establishing sound, practical objectives and beginning to deliver them. Our asset base is high-quality; our task -- on which we are already vigorously in action -- is to improve how it operates. We have a workforce which, as it is increasingly freed of unnecessary complexity and overhead cost and given clear aims and accountability, will translate the operational momentum we are already seeing in the first half of 2008 into steadily improving financial returns thereafter."
Since taking over, Hayward said, the senior management team has conducted one of the most wide-ranging reviews of BP's operations in its recent history, and it has established "a clear and focused agenda" for operational recovery and long-term renewal, which took pragmatic account of the changing external environment, including continuing high oil prices.
"We have slimmed the top team from six executive directors to four and the next tier by more than 10%," said Hayward. "Across wider management we are reducing numbers by around 12-13%. As I said at our fourth quarter results [report], we aim to cut corporate overheads by 15-20% and eliminate some 5,000 posts worldwide over the next 18 months. Some 50% of the reductions will result from streamlining our functions, 40% from refining and marketing and the remainder from exploration and production" (see NGI, Feb. 11).
BP is "moving resources to the "front line," he said, and "beefing up technical expertise through, for example, the recent recruitment of over 2,000 new engineers and senior operations managers." BP also is establishing proprietary "training academies" at the Massachusetts Institute of Technology and increasing its technology spending this year as part of a plan to deliver "a strong improvement in the efficiency and safety of operations..."
With a "mix of sector inflation and growth," BP's capital spending likely will be $21-22 billion this year, up from $19 billion in 2007, the CEO said. About $15 billion is earmarked for upstream, $5 billion for downstream and $1.5 billion for the other businesses, including alternative energy. And $1 billion of assets are scheduled to be sold.
BP also plans to spend about $1.5 billion for alternative energy programs this year. The front-end acceleration is part of a longer-term $8 billion plan to build a new business based chiefly on solar, wind and biofuels. Alternative energy, said Hayward, offers BP "significant growth potential"as world demand rises for low-carbon or noncarbon energy.
"We intend to grow this business predominantly for its equity value," Hayward said. "Taking stock market valuations for similar companies, we estimate it is already worth between $5 billion and $7 billion. As we go forward we will be looking at how best we can realize that growing value for our shareholders."
Vivienne Cox, CEO of the Alternative Energy unit, said BP has assembled a "land bank" sufficient to build 15 GW of wind generation in the United States, including Cedar Creek in Colorado, one of the country's biggest wind farms, and more capacity was planned for Europe, India and China. In solar, sales of 800 MW, and similar levels of production, are targeted by 2010.
Based on market assessments of similar companies and projects, the estimated value of BP's solar business is between $2.1 billion and $3.9 billion, and its wind business is valued between $1.8 and $2.1 billion, Cox said. Including the gas-fired power generation segment of the business, the Alternative Energy unit is valued at about $5-7 billion.
©Copyright 2008 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.