The past two years have been trying for BP plc, which has faced an onslaught of legal bills and payouts from the devastating 2010 Macondo well blowout in the deepwater Gulf of Mexico (GOM), but the producer is close to putting its troubles behind it, Group CEO Bob Dudley said Tuesday.

Speaking with financial analysts to discuss 4Q2012 and full-year results, Dudley expressed optimism about blue skies ahead.

“We have moved past many milestones in 2012, repositioning BP through divestments and bringing on new projects,” he said. “This lays a solid foundation for growth into the long-term.” Last year “was what we said it would be, a year of milestones in which a great deal was accomplished by BP.

“We are entering 2013 as a more focused oil and gas company with a smaller, but stronger portfolio that provides our platform for growth, a set of distinct and capabilities, a disciplined financial framework and a clear strategic direction…”

This year “we’ll continue to see the impact of the reshaping work in our reported results from the divestment of nonstrategic assets and the repositioning of our Russian interest as well as some early results from improved underlying performance. By 2014, I expect underlying financial momentum to be strongly over them.”

BP posted a 72% decline in profits in 4Q2012 as production dropped on asset sales and through agreements related to Macondo fines and settlements. The replacement cost profit was $2.14 billion in 4Q2012, versus $7.61 billion in the year-ago period. Replacement costs, used by some foreign producers, exclude gains or losses in the value of inventories, making the numbers equivalent to the net profits reported by U.S. operators.

Excluding the one-time gains/losses from asset sales and the Macondo settlements, BP earned $3.98 billion, about 20% lower year/year, but above Wall Street’s forecast, which had expected earnings to average $3.37 billion. Revenues were $98.86 billion, compared with $96.34 billion in 4Q2011.

Excluding output from its Russian venture TNK-BP, total oil and natural gas production was 2.29 million boe/d in the final quarter, off 7% year/year, and attributed mostly to divestments. The production number was in line with analyst expectations.

There are still legal headwinds facing the company. BP’s legal team, Dudley said, is prepared to settle with the U.S. Department of Justice (DOJ) or go to trial on Feb. 25 in New Orleans to face civil charges regarding the Macondo well blowout. BP last year reached a landmark $7.8 billion class action settlement with the Plaintiffs Steering Committee; last month it settled criminal charges related to the spill (see Daily GPI, Jan. 30; Dec. 28, 2012).

Also in 4Q2012 BP made the final $860 million payment into Macondo $20 billion trust fund, a major milestone that should help direct future operating cash flow. The civil trial set for this month concerns Clean Water Act violations that carry fines of of $5-21 million, based on DOJ’s estimate that 4.9 million bbl was released from the blown well.

Dudley highlighted BP’s ability to “deliver” on a 10-point plan to create a “more focused portfolio, having effectively reached our $38 billion divestment target a year earlier than planned” when it was launched in 2010. Of the $38 billion announced divestment since 2010, BP had received more than $31 billion in proceeds at the end of 2012, with the most of the rest of the proceeds expected this year. The upstream “will remove around 50% of our installations, 50% of our pipeline life and reduce the number of wells by one-third while only reducing our reserves by around 10%.”

The asset sales “will have a marked impact on reported earnings and operating cash flow in 2013, but it paves the way for future value creation by establishing a high quality platform for growth,” said the CEO.

The long-term growth of the company is keyed to BP’s Energy Outlook 2030 published last month (see Daily GPI, Jan. 17). “Oil, gas and coal will supply 80% of these names, with gas showing the fastest growth at around 2% per year,” said Dudley. “However, the pattern of supply continues to shift, and we expect unconventional oil and gas to play an increasing role in meeting demand…”

Last year alone portfolio additions in North America were made in Canada and the GOM. “We also established a significant unconventional position in the emerging Utica Shale in Ohio and we’ve now started drilling out that inventory.” There is a possibility that the Utica could add to BP’s reserves numbers by the end of the year, he said.

BP also has increased its GOM rig fleet to seven from five, and they are working on a “combination of exploration and appraisal activities.” BP remains the largest GOM leaseholder with “700-750 leases,” said Dudley.

Commodity prices also are playing a role in where BP is targeting its resources. The oil price “has remained above $100/bbl for the majority of the past year, albeit with some continued dislocations between crude markers in the U.S.,” Dudley said. “Clearly, this is sensitive to the balance between global demand affected by the recovering global economy and supply attentions from geopolitical risks.

“Henry Hub gas prices have continued to remain historically low with reductions in drilling activity offset by only modest demand growth, which has not been sufficient for recovery in the price.” With that in mind, liquids and oily assets are high on the list of North American activity, both on land and in the GOM.

“On unconventional in the U.S., it’s interesting to note that in the second quarter of last year, [natural] gas prices were $1.90 roughly and now they are up to $3.30, but for BP, which has a very large gas position in North America, we have reduced the number of operating rigs that we have had from 24 in 2010, down to 12 in 2011 and at the year end, 2012 now, we are down to only five rigs.

“We have reduced our activity in dry gas basins to zero rigs and we have changed our portfolio by moving out of the mature basins, some…gas plants, for example and we have been moving into the liquid-rich areas of the Eagle Ford and Texas and Utica Shale in Ohio. We will further continue to shift our investments to the liquid-rich areas…

“We will retain the optionality on the dry gas sector, and I think for BP right now, it’s a question mark. What will happen? There is a lot of gas in the U.S., it’s still a question mark but I think the U.S. will eliminate a degree through exports, but we are adjusting both the portfolio in the investment levels to suit what we see. Gas markets now are very regional around the world.”

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