BP last year added 1.7 billion barrels of new oil and gas to its reserves base, a replacement ratio of 121%, excluding acquisitions and divestments -- the 15th successive year in which it has reported the replenishment of reserves by more than annual output.
The company said today that it expected to be able to grow production through to 2013 from existing projects. With year-end 2008 reserves of 18.2 billion barrels and a resource base of 43.4 billion barrels, this growth could be maintained until 2020 without any further discoveries.
At a total of 61.6 billion barrels of oil equivalent, BP's combined reserves and non-proved resources were sufficient for 43 years of production at the same rates as last year.
Previewing BP's annual strategy presentation by the executive management team to the financial community in London today, chief executive Tony Hayward said the turnaround the company had achieved in the last 18 months gave it strong financial and operational momentum to face what will be a tough year in 2009.
"We intend to meet the challenges of 2009 head on and, where possible, to turn them to our advantage. Our strategy is an enduring one. We are delivering upstream growth and making good progress turning around our downstream business. The future has not been cancelled.
"Our aim remains to strike the right balance for our shareholders between investing for the future, providing current returns via the dividend, and ensuring an appropriate and prudent level of gearing.
"Our view is that the right current balance is both to continue paying the dividend and to maintain investment to grow the firm - and to use the capacity of our balance sheet while the industry cost structure adjusts."
Hayward said: "We began our drive in 2007 to counter the cost inflation that had developed alongside rising oil prices. Our mantra is that every dollar counts and every seat counts and we are applying it with determination.
"As a result, we managed to halt the inflationary trend and to hold costs flat in 2008, despite the continued rise in oil prices for most of the year. Our aim this year is to begin rolling back the inflationary trend and drive deflation into the business. We expect our costs to fall by around $2 billion in 2009."
Predicting real opportunities for companies able and prepared to invest in readiness for the eventual economic upturn, Hayward said BP planned to keep this year's capital spend broadly in line with 2008, at between $20 billion and $21 billion, with lower spending in Refining & Marketing and Alternative Energy and maintaining investment in Exploration & Production.
"The last few years have been a poor time to put capital on the balance sheet, but the next few may be a lot better," he said.
Highlighting the main areas of ongoing performance improvement, he said the downstream business had boosted its underlying profitability by some $2 billion in 2008, though this strong progress had been masked by the biggest decline in US refining margins relative to the rest of the world in more than 20 years.
"However, our US refining system including Texas City has now re-established full operation and we believe there is a good chance that our refining business will return to profitability in 2009, after a $700 million loss last year. We also see further benefits from simplification, cost- efficiency and more competitive fuels value chains.
"TNK-BP reported a $700 million loss in the fourth quarter of 2008, mainly due to adverse tax lag effects, but in the market conditions experienced so far in this quarter we expect to see a return to profitability.
"Our upstream business overall is delivering good growth, making BP the only supermajor to boost its production in 2008. Last year we said we expected to grow production to 2012 and that we could maintain it out to 2020 from existing projects. From existing projects we now expect to grow production to 2013 and we have the potential for continued growth right out to 2020 at an average annual rate of between one and two%.
"Combined with our reserves replacement of 121%, that's a great record to be able to cite in this, our centenary year, because it suggests that BP has not lost its traditional skill with the drill-bit," Hayward said. "And that's one of the many reasons why I believe we can face the future with pride, confidence and a renewed sense of purpose."
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