BP plc has increased its capital guidance for 2017 to $16-17 billion, a $1 billion hike from third quarter guidance, as it eyes potential “opportunities” within its rebalanced portfolio, CEO Bob Dudley said Tuesday.

The London-based oil major, and the largest natural gas marketer in North America, saw its fourth quarter profits and full-year results dinged again by the Macondo oil well explosion that occurred in the deepwater Gulf of Mexico in 2010. Since then, close to $55 billion of assets have been sold off and the company has been restructured into a tighter operation.

Dudley and CFO Brian Gilvary during a conference call discussed last year’s results and what they expect moving forward. Wariness about the direction of oil and natural gas prices colored the conversation. Last year Dudley said he expected prices would be lower for longer — but not lower forever.

Opportunities Opening Up

BP finished the year “ahead of where we expected to be at this point in rebalancing our organic financial frame, supported by the significant and rapid structural changes we’ve made to our cost base,” Dudley said. “Our organic capital expenditure of $16.0 billion was well below our original guidance of $17-19 billion for the year. As well, we reached our controllable cash cost reduction target of $7 billion versus 2014, a year early. So looking over the course of the year we are pleased with our underlying financial progress despite the very weak environment.

As crude oil has inched up from $40/bbl, BP has been able to make a few strategic deals in key global areas. Now the surplus has begun to dissolve, opening up more opportunities.

“I think structurally we can start to see the overhang in the crude supply start to work its way through this year,” Gilvary said. “It’s taken longer than was anticipated because I think actually some of the supply last year wasn’t anticipated that came on, particularly Libya coming back in terms of production there.”

If oil prices had remained around $40/bbl, doing deals would not have been impossible, but “we would’ve been nervous at $40,” Dudley said.

The management team is encouraged enough to increase by $1 billion the initial 2017 capital spending guidance issued in October.

BP, whose main U.S. operations are headquartered in Houston, in December said it would move its Lower 48 business to Denver to be near its substantial Rocky Mountain assets. Dudley was asked if the time was right to begin building the onshore portfolio.

“I think our team’s…capability now, driving the rigs and…getting results has really, really come through,” he said. “Production in the quarter was over 300,000 b/d, which is as high as a fourth quarter since…2011…We got our highest quarterly operating cash flow from there as well…

“We like what the team is doing. We will look at ways to incrementally see how we can take that capability and expand it. We’ll do it creatively. There are a lot of targets, I would say, that are out there on offer. They seem highly priced to us. So, we’re going to use a lot of discipline here before we take it off.”

BP reduced its U.S. onshore rig count to five from 13 year/year, “but what we’re getting out of those rigs is quite astounding,” the CEO said.

Lower 48 ”Markedly Better Position’

The plan now is to ensure the Lower 48 business is cash breakeven, Gilvary added. Once that’s achieved, it would “justify the capital spend going forward…It is in a markedly better position than it was before Dave [Lawler] and his team came aboard.” Lawler, a former SandRidge Energy Inc. executive, joined BP in 2014 to run the onshore business.

Globally, BP has “reengineered” projects and is taking “a fresh look” at how it does business, Dudley said. “Drilling costs have come down significantly.” He pointed to the Thunder Horse South expansion in the deepwater Gulf of Mexico that came on stream in December. It was 10% under budget, achieving $150 million in savings and was 11 months ahead of schedule.

“Things are happening faster,” said the CEO. “They’re happening at a lower cost. There isn’t a project out there that I would say we’re worried about…that’ll come on stream this year…”

For example, a project in Oman is “using new techniques and new data, so that every time a well is drilled, we automatically rework the entire development plan to optimize where the next well moves to, things that we’ve never actually seen in our history before in terms of being able to use the new technology.”

U.S. Border Tax? No Comment

Like many of the energy-related conference calls this quarter, Dudley was asked about the Trump administration’s potential U.S. border tax adjustment, which would reduce the cost of exports and increase the import costs. BP has a large refinery in Canada that could be negatively impacted.

“Well, I was watching the U.S. about Canada, specifically, but there are also issues around Mexico and just imports in Mexico in general, said the CEO. “I’m going to take the position of the Canadian government because I watched and listened to them [Monday night]. They more or less just said, ‘we scratched our heads and we’re going to think about what this means and not comment.’ And I think I should probably do the same thing.”

BP turned a profit in 4Q2016, reversing a year-ago loss, but it fell short of Wall Street expectations. Profits rose to $540 million (13 cents/share) from a year-ago loss of $3.3 billion. Consensus estimates fell about 2 cents short. The upstream activities earned $400 million from a year-ago loss of $728 million as prices strengthened. Revenue climbed to $51 billion from $49 billion.

Production declined by 5.5% from a year ago to about 2.19 million boe/d, in part on asset sales.

“By the end of last year we were seeing Brent oil prices around where they are today in the mid-$50s, but in 2016 the average oil price was $44/bbl, the lowest for 12 years,” Dudley said. “Henry Hub gas prices were also weak in 2016, averaging $2.50/MMBtu for the year and the refining marker margin, at $11.80/bbl, was the lowest since 2010.

“As we stand today, Brent oil prices have risen by around $10/bbl” since the Organization of the Petroleum Exporting Countries (OPEC) agreed to reduce output through at least May. “We still expect oil demand growth to be strong this year at 1.3 million b/d, with modest growth in non-OPEC supply, which means the timing and extent of market rebalancing depends heavily on OPEC behavior.

“The physical market has begun to tighten with inventories falling a little faster than seasonal norms.” However, inventories in developed nations at the end of 2016 “were still close to 3 billion bbl, significantly higher than their recent historic average.”

BP expects a lot of the historical inventory overhang to be eroded by the end of 2017 “if OPEC and non-OPEC producers deliver on their promised production cuts. Any shortfall could delay this process and does still pose some downside risk to prices in the near term. So while we remain optimistic about the market continuing to rebalance in 2017, we recognize that this could take some time.”

In short, said the CEO, “the road to a more balanced position still has uncertainties. We are very aware of these uncertainties, but…we are confident in our resilience to the environment and we are continuing to build momentum in our businesses.”