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BP to Raise Upstream Spending in Bid to Find More Oil, Generate Cash

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LONDON – BP PLC (BP, BP.LN) said Monday that it is raising the amount it spends on exploring, developing and producing oil from now until the end of the decade as the company seeks to generate more cash, find more higher-margin oil and increase its reserves.

In a strategy update, the U.K. energy giant told investors it is raising capital spending to between $24 billion and $27 billion a year in 2014 to 2020 from $19.1 billion last year, with an even bigger chunk going into upstream than before.

The proportion earmarked for upstream will rise to around 80% of total capital spending in 2014 from around 70% in 2011, underscoring the company's renewed emphasis on its upstream division. BP has agreed to sell around $37 billion of assets in the past two years to help cover in part costs stemming from the 2010 Deepwater Horizon disaster in the Gulf of Mexico that caused 11 deaths. Those assets have included mature oil fields with declining cash flows and not much growth potential, pipelines and marketing networks and refineries in the U.S.

Just over a week ago, BP appointed its America president, Lamar McKay, to run the company's upstream division, freeing up Chief Executive Bob Dudley, who had taken up the position after the Deepwater Horizon disaster spurred a shake-up in that segment of the business.

Last month, BP agreed to accept criminal responsibility for the Deepwater Horizon disaster and to pay $4.5 billion in fines and restitution. But it still faces a costly battle with the U.S government over civil penalties for the pollution unleashed that resulted in the worst offshore oil spill in U.S. history.

Mr. Dudley said the bias of the company would be toward finding and producing more crude oil, particularly in higher margin areas such as Angola and Azerbaijan, saying that they presented better value for the company in the long term.

The cash for the upstream spending will come from ongoing divestments, additional funds generated from operations such as higher-margin oil-producing projects and other investments such as the modernization of BP's Whiting refinery in the U.S. Midwest.

By the end of 2014, BP aims to bring 15 big upstream projects into production, 11 of which are in higher-margin areas like Angola, Azerbaijan and the North Sea.

Since early 2010, BP has acquired interests in around 400,000 square kilometers of new exploration acreage, more than doubling the access to new areas compared to what it had in the nine years prior to 2010.

This new acreage includes new licenses as well as equity in existing projects in Australia, Brazil, India, China, deepwater Trinidad and the Gulf of Mexico, so it's a mix of new plays and work around existing known basins.

This year, BP expects to complete nine exploration wells, including in Angola, Brazil, the North Sea and Namibia. That number is expected to increase to 15 to 25 wells a year between 2012-15.

Copyright (c) 2012 Dow Jones & Company, Inc.

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