BP plc reached a “turning point” in its operations in October and has begun to invest for the long term, CEO Bob Dudley told investors on Tuesday.

Operating cash flow generated by BP last year climbed to $22 billion — 60% above 2010’s figures — and expected net cash flow in 2014, “in a $100/bbl oil price environment,” is forecast to be about double that in 2011, he said during a webcast to discuss the company’s 2011 performance and plans for this year.

“2012 will be a year of increasing investment and milestones as we build on the foundations laid last year,” Dudley said. “As we move through 2013 and 2014 we expect financial momentum will build as we complete payments into the Gulf of Mexico [GOM] trust fund, restore high-value production and bring new projects on stream.”

The big “turning point,” he said, came in October when BP’s output numbers began to rise: oil and gas production increased by more than 5%, or 170,000 boe/d, sequentially from 3Q2011 to 4Q2011. For the year output averaged 3.45 million boe, ahead of the company’s forecast of 3.4 million boe.

BP now is operating five drilling rigs in the GOM and three more are scheduled to be moved to the deepwater this year, Dudley noted. An appraisal well was spudded last November on the promising Kaskida field in Keathley Canyon. The company last October received preliminary approval from federal regulators to drill four deepwater wells in Keathley Canyon in the GOM, which was its first offshore permit approval since the blowout (see Daily GPI, Oct. 25, 2011).

By the end of 2012 BP expects an additional three rigs to be working in the region, subject to regulatory approval. “The Gulf of Mexico remains a very important part of our future,” and is considered one of the backbones of BP’s future growth, said the CEO.

BP was the biggest GOM producer before the Macondo well blowout and continues to be one of the top deepwater leaseholders. To underscore the GOM’s importance, Dudley announced that BP and its partners will launch the second phase of Mad Dog, a “major new gas field” in the deepwater. BP, with 60.5% working interest, operates the project with partners Chevron Corp. (15.6%) and BHP Billiton (23.9%).

A new spar platform is to be installed on the southern extension of the field that would be capable of producing 120,000-140,000 boe/d. “We have just sanctioned with our partners…one of the largest new free-standing developments in the Gulf of Mexico.” The spar is scheduled to begin operations by the end of this year.

Mad Dog, discovered in 2005 in Green Canyon Block 782 field, is one of the top prospects in BP’s portfolio. The field has estimated total hydrocarbons in place of at least 4 billion boe. Up to 150 drilling and production personnel operate phase one of Mad Dog, which was designed to drill and produce from at least 12 wells simultaneously. The field initially ramped up using a truss spar platform that was designed to process up to 60,000 MMcf/d of gas and up to 100,000 b/d of oil.

BP last year also worked on more than just rebuilding its reputation.

“Globally, BP was awarded 55 new exploration licenses in nine countries last year, making it 84 over the last year and a half,” Dudley said. “We believe this resulted in more net acreage than accessed by any of our peers in 2011, and it is a powerful indicator of how confidence has been restored in BP to work around the world after the events of 2010.”

Twelve exploration wells worldwide are slated to be drilled this year, which is double the number in 2011. Six major upstream projects are scheduled to ramp up. Capital investments for 2012 are set at about $22 billion, compared with $19 billion in 2011, with the upstream segment receiving $16-17 billion.

BP also continues to be the biggest natural gas trader in North America. Although the GOM is its top priority, executives disclosed that BP acquired 450,000 net acres in the Eagle Ford Shale in South Texas last year. The purchase came about through “high-grading the portfolio,” said Executive Vice President Andy Hopwood, who is in charge of strategy and integration.

“We’ve got about 6 Tcf of resources spread over about 450,000 acres,” said Hopwood. “We don’t divulge specific deals, but we have a working relationship with Lewis Energy [Group], and they operate it…It is going very, very well.” BP first joined Lewis in the Eagle Ford in early 2010 when it acquired a half-stake in about 80,000 net acres (see Daily GPI, March 3, 2010).

Globally, BP is “going to a situation where we have 20 ‘real’ exploration tests a year,” said Hopwood. “Last year we managed six and this year we’re heading for 12…we’re only operating five, so there’s some uncertainty in that. But we have a portfolio that will sustain 15-25 projects a year.”

The oil major also is preparing “vigorously” for the initial trial related to the 2010 Macondo well blowout, Dudley said. In recent weeks there have been rumors circulating in Houston’s legal circles that BP is prepared to settle out of court with the U.S. Department of Justice (DOJ) ahead of the first trial later this month in New Orleans. A trial could result in huge U.S. penalties for Clean Water Act violations, among other things.

BP is ready to settle more than 600 civil lawsuits, as well as DOJ litigation, said Dudley. The “bias has always been toward settlement, but only at a fair and reasonable price.” The multi-district litigation is to be tried in three phases, each one addressing a different part of the incident and the consequences, and the “whole process is likely to last into 2013,” said the CEO. The first trial is scheduled to begin Feb. 27 in New Orleans before U.S. District Judge Carl Barbier (see Daily GPI, Feb. 1).

“From the onset, we have said we do not believe BP was grossly negligent…We are confident in our case and we look forward to presenting the evidence…We expect considerable media attention, but we would prefer that this case not be tried in the media. The appropriate place is in federal court in New Orleans.”

The CEO rejected a suggestion by an analyst that the company’s best interests might be best served to fight a lengthy legal battle and reduce the final penalties. Since the oil spill BP has traded well below its peers. On the New York Stock Exchange Tuesday afternoon BP’s share price was about $46.60/share, while ExxonMobil Corp. was trading at $82.12 and Royal Dutch Shell plc stood at $72.75.

“Our share price has taken a huge discount because of the uncertainty” related to the Macondo settlement, said Dudley. “If there is a…reasonable and fair way to put this behind us…and the value of the company goes up, that’s actually in the best interests of the shareholders.”

BP’s estimate for the total costs of the worst-ever oil spill in U.S. waters now is $43 billion, about $1.8 billion higher than originally estimated because of increased costs for Gulf Coast shoreline cleanup, now essentially complete, and an additional $500 million charge for legal expenses. BP’s total litigation bill stands at more than $2 billion.

BP has set aside $20 billion to pay for damages from the spill, from which it has paid close to $7.8 billion. If BP were to be found grossly negligent by a federal court, it could face fines of up to $20 billion under the Clean Water Act.

To date, BP has been paid more than $5 billion by its partners in the blown-out well, Anadarko Petroleum Corp. and Mitsui Ltd., which means the company will be able to complete its payments into the $20 billion compensation fund by the end of this year, Dudley said.

Based on the results for the final quarter and 2011, BP increased its quarterly dividend by 14% to 8 cents/share from 7 cents. The company’s 14 cent/share quarterly payout was cut following the oil spill.

BP’s replacement cost net profits in 4Q2011 jumped 65% to $7.61 billion ($2.41/share) from $5.57 billion ($1.47) in the year-ago period in part because of an estimated $4 billion contribution from Macondo partner Anadarko. Replacement costs exclude the gains or losses from the changes in the value of fuel inventories and is comparable to net income under U.S. accounting rules.

Excluding one-time charges, replacement cost profits jumped 14% to $4.99 billion in the final quarter of 2011 from $4.36 billion in 4Q2010. Profits for the year rose to $21.66 billion from $20.52 billion in 2010.

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