BP today outlined plans to further boost efficiency and reduce costs with the aim of improving its annual underlying pre-tax profitability by more than $3 billion over the next two to three years.
The company also extended its medium-term oil and gas production outlook, projecting that annual output would rise by 1-2 percent a year on average to 2015, at $60 per barrel from a 2008 base, and expressing increased confidence in further production growth out to 2020.
Previewing BP's annual strategy presentation to the financial community, Group Chief Executive Tony Hayward said the company had established strong momentum in its core businesses and had made great progress in reducing costs and improving absolute and relative financial performance in the past two years.
But there was a lot more still to do, he added, announcing the start of what he called "a new phase to realize the potential of the portfolio built over the past decade."
"The challenge and the opportunity for us is that while our portfolio ranks amongst the best in the industry, our financial performance has yet fully to reflect this," said Hayward. "There is now a real opportunity to make this portfolio work harder for us and we intend to do just that."
Hayward said there were more opportunities to improve operating and cost efficiency right across the company, from refineries and marketing operations in the downstream to procurement, drilling and project management in the upstream.
BP's Refining and Marketing segment has committed to further improve underlying profitability by over $2 billion over the next two to three years, and to ensure that refining operations can be profitable even in depressed conditions like those the industry faced in 2009. Hayward said BP's R&M business was well placed to compete because of the quality of its portfolio, featuring on average larger and more advantaged refineries than its competitors', and because it had already delivered a strong improvement in underlying performance and reduction in costs.
In Exploration and Production, a significant organizational restructuring is underway to centralize project management, improve cost efficiency and inject greater consistency into operations. In particular a Centralized Developments Organization is being established to manage all major projects in the portfolio. These developments are expected to enhance capital efficiency and improve returns in the coming years.
"Whichever way you look at it, there are significant opportunities for improvement and in every case firm plans are in place to close these gaps," said Hayward. "Our direction is clear: the unrelenting pursuit of competitive leadership in respect of cash costs, capital efficiency and margin quality. We believe we have made a good start -- but it's only a start."
On the upstream, Hayward said BP's medium-term growth focused on three areas of deep expertise: deep-water production, global gas including unconventional gas, and managing some of the world's giant oilfields. In each area, BP had made significant advances in 2009.
He pointed to BP's successful track record of 17 years with a reported reserves replacement ratio of 100 percent or greater, and to its success in adding to its reserve and resource base over the past two years -- with 7.5 billion barrels of oil equivalent (boe) of new resources added, sufficient to replace five years of production. He also cited its five-year record of industry-leading discovery costs. BP's finding and development costs in 2009 were $12 per boe, the lowest in five years.
These factors underpinned the company's projection of 1-2 per cent average annual output increases, from a 2008 base at $60 per barrel, until 2015 and increased confidence in the potential to continue production growth through the end of the decade.
BP produced 4 million boe per day in 2009, an increase of 4 per cent on 2008. In the next two years 24 new major projects will reach final investment decision. BP intends to start up a total of 42 new major projects between 2010 and 2015, expected to contribute about 1.0 million to total production by 2015, more than offseting the decline from currently producing fields.
In addition to setting out BP's downstream and upstream plans, Hayward reaffirmed the company's commitment to investing in growing a focused portfolio of low-carbon businesses, comprising US onshore wind power, biofuels, solar power and carbon capture and sequestration. BP invested $1.3 billion in this portfolio in 2009 and a cumulative total of more than $4 billion since 2006.
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