"Operational momentum" that began to build toward the end of 2007 should enable BP plc to not only meet but exceed the production goals that it promised to deliver through 2020, the company's CEO said Thursday.
Speaking at the company's annual general meeting in London, Tony Hayward said he was optimistic that the changes implemented across the board last year already are paying off. Just a few months into the job, Hayward last October unveiled a top-to-bottom reorganization plan to reduce BP's business units; an alternative energy division also was created (see NGI, Oct. 15, 2007). Two months ago he said BP was making "good, step-by-step progress" to ramp up oil and gas fields and trim excess overhead (see NGI, Feb. 11).
"The scale and quality of our resource base gives us confidence that we can maintain production at not less than 4 million b/d until 2020 without any further exploration success or new access," Hayward said. "We confidently expect to do better than that."
BP remains on track to ramp up more than 25 projects through 2020, which would add around 650,000 boe/d of oil and gas output.
"These new projects reflect building momentum in our operational delivery," he said. "This is planned to continue through 2012 when we expect production of around 4.3 million b/d, assuming a $60 [a barrel] oil price."
BP's exploration and production unit ramped up nine projects in 2007, six in the last three months alone, including the long-delayed Atlantis platform in the deepwater Gulf of Mexico (GOM) (see NGI, Dec. 24, 2007). Another GOM ramp-up, King, is 5,500 feet below sea level and is the world's deepest subsea pump, he noted.
"In the Gulf of Mexico we are on course to start up Thunder Horse, the world's largest semi-submersible platform by the end of 2008," he said. "Despite the challenges of the last three years, when Thunder Horse starts up it will be a powerful symbol of the new projects which BP is bringing onstream" (see NGI, Sept. 17, 2007).
The operational changes lifted BP in the first three months of 2008, and the new structure should begin to "feed through" to the bottom line by the last half of 2008 and into 2009, the CEO told investors.
(Note: Brian Frank, President, BP Energy, North America Gas & Power, will be delivering an update on North American natural gas supplies as a keynoter at GasMart 2008 in Chicago May 20-22. See gasmart.com)
Following a period in which its peers profited from rising commodity prices, Hayward asserted that BP still has more to do.
"Since being nominated as chief executive last year I've visited many of our operations worldwide -- and everywhere I have felt a real sense of pride about this company, its people, its operations and basically what it stands for...But that sense of pride does not mean I suffer any illusions. After a challenging few years, BP needs to raise its game," he said.
BP's replacement cost profit for 2007 was "down 22% to $17.3 billion. That number tells you a lot. It came at a time when the external trading environment was, by and large, extremely robust" because of higher prices. "Our competitors were more successful at exploiting this environment than we were."
The reasons to him are obvious. "Our way of doing business is too complex; we are overly bureaucratic, not consistent enough and our costs are too high," Hayward said. He has had a bird's eye view of BP's growth after joining the company as a geologist in 1982.
To ensure its future success, other plans have been implemented to build BP's workforce.
"We are taking action to continually build the capability of our people. In 2003 we established a Projects Academy at the Massachusetts Institute of Technology, which has trained almost 250 of our senior project staff and made a significant impact on our major project delivery. Over the last year we have established an Operations Academy -- along the same lines -- which will train our operations staff in the new common operating system.
BP also has embarked on an extensive recruitment effort, adding 2,000 engineers last year," he said. "Graduate recruitment has also been stepped up and is now running at 750 a year, up from less than 300 three years ago. These new recruits are the future of BP."
BP's 31% dividend increase in 4Q2007 was a statement of confidence that the revamped strategy will work, said Hayward.
Another initiative is for BP is to increase the value of its new alternative energy unit.
"We will examine a number of options, including joint ventures, partnerships and even, where appropriate, partial public offerings," Hayward told the crowd.
In its alternative energy business BP is "creating material growth options with a portfolio of low-carbon energy sources including solar, wind, hydrogen power, biofuels, clean coal and carbon capture and storage," he said. "We have invested more than $1.5 billion since 2005, and in 2008 plan to invest a further $1.5 billion." Among its successes, Hayward pointed to the start-up of Cedar Creek, "one of the largest wind facilities in the U.S."
One of the advantages, he said, "of having a long history is that you can get a sense of perspective. Every decade or so, BP has had to reinvent itself. That was the case when we lost our assets in the Middle East, when we moved into Alaska and the North Sea in the 1970s and then again in the late 1990s when we created the modern BP. We are in the midst of one of those periods now...What we have to do now is to make BP perform...and that is what my team and I intend to do."
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