BP plc CEO Bob Dudley said Tuesday his top priority is to continue to stabilize the company one year on after the Macondo well blowout in the Gulf of Mexico (GOM). In other words, he said, don’t look for the company to spin off its refinery operations anytime soon.
During a conference call to discuss the company’s tepid 2Q2011 earnings report, the CEO said he understood investors’ frustration with the company’s sluggish share price, which was trading at about $45.50/share at midday Tuesday, down more than 2% from the open. The oil major’s share price has shown no signs of returning to its pre-Macondo high, which was above $58/share in mid-April 2010 before the blowout in the deepwater Gulf of Mexico (GOM).
“It is worth reflecting where we were one year ago when our own survival was in question. In that year we’ve strengthened [our] balance sheet…closed asset sales, been active with our portfolio…obtained new exploration contracts…and restored the dividend,” said Dudley. “Yet we are, as you are, impatient. So I just want to add that we note the difference in the value of the company and the share price.”
The April 2010 deepwater well blowout and explosion on the Deepwater Horizon platform, which killed 11 men, “were never going to be something any company could recover from overnight,” said Dudley. “Part of what we are doing is reducing uncertainties not only in the United States but worldwide. One thing is certain — the world needs more and more energy and more of it will come from frontiers” like deepwater.
BP’s management team shares investors’ “great sense of urgency around where our share price is,” the CEO told energy analysts. However, the company needed first to focus on consolidation and stabilization by strengthening its balance sheet, reducing debt, improving its credit rating and building its exploration portfolio.
There’s no need for a “knee-jerk reaction to suggestions that are thrown out into the market,” he said, referring to reports that BP may be considering going the route of ConocoPhillips, which plans to spin off its refinery operations to become a pure-play explorer (see Daily GPI, July 15). Marathon Oil Corp. completed a similar transition in June (see Daily GPI, July 1).
“We…have to have patience to embed safety, risk management…get our operations working with a different culture and structure,” said Dudley. “That requires patience and persistence.”
BP may consider restructuring at some point down the line. “We’re not ruling it in or out,” the CEO said.
BP remains the top oil and gas producer in the GOM but it has lagged behind its competitors considerably in securing new offshore drilling permits since the deepwater drilling moratorium was lifted early this year.
Chevron Corp. to date has received 23 federally approved permits to drill in the GOM, while Royal Dutch Shell plc has secured 16 and ExxonMobil Corp. has 11. Today BP has one permit.
Asked what BP’s timeline was to get its GOM operations back up to speed, Dudley said it was “not right for us to lay out a timeline because it’s the regulators who approve the permits. But we have lots of people gearing up, ready to go, and we are working closely with regulators.”
The company currently is producing around 250,000 boe/d from its GOM operations. It also is a stakeholder in some of the offshore permits approved to date, noted BP America Chairman Lamar McKay.
Beyond that, “the first step is to make sure we’re ready” to resume operations safely and with less risk, said McKay. BP in mid July issued some self-imposed standards for operating in the GOM to demonstrate to U.S. officials that it could operate safely in the offshore (see Daily GPI, July 18). Those voluntary standards “have been welcomed.”
BP’s first approved permit is to plug and abandon (P&A) a well at its promising Atlantis deepwater facility, McKay said. “We’ll aggressively apply for permits after P&A and when regulators feel like we’ve met those commitments, we’ll get started and make significant progress from there…
“We will need to get back to Atlantis and Thunder Horse…that we were drilling prior to Macondo…” The two projects are expected to be among BP’s largest producing properties in the U.S. offshore.
The delays in the GOM are affecting “broadly all of the operators,” Dudley said. “Many, like us, have rig idle charges stacking up.” However, there’s no intention to move rigs elsewhere because they could be gone for “quite a long time, half a year or a year,” said the CEO.
“The Gulf of Mexico is a very prolific basin,” explained Executive Vice President of Production Bob Fryar. “These wells make substantial rates when they come online. These are big wells and we anticipate they will get back ramped up…in coordination with U.S. regulators.”
Although other producers are securing offshore drilling permits at a much quicker pace, Dudley doesn’t believe that U.S. regulators are taking too much time to approve BP’s drilling permits.
“We have our first permit, which was not unduly delayed. And we have many, many permits waiting.” However, he said BP was taking its time to ensure “we have the standards in place to go forward…We have a full schedule for permits.”
BP’s clean replacement cost profit, which strips out gains or losses, totaled $5.60 billion in 2Q2011, which was 13% higher year/year. Net profits were similar, totaling $5.62 billion in the latest period. Oil and natural gas production declined 11% from a year ago to 3.43 million boe/d, in part because of the GOM drilling moratorium and mammoth asset sales.
“We expect the momentum of our recovery to build into 2012 and 2013 as new projects come on stream, particularly in higher-margin areas; as we complete current turnaround activity; as we return to work in the Gulf of Mexico; and as uncertainties reduce,” said Dudley. “At the same time we will increasingly focus both our portfolio and our investments on long-term value growth.”
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