LONDON: BP is raising investment and betting its future on oil over gas, as the slimmed-down British group fights to recover from the US oil spill and Russian rows that have hurt its reputation and share price.
The No.4 ranked company among western investor-owned oil and gas groups said it would raise capital spending, excluding acquisitions, to between $24bn and $27bn a year in the years 2014 to 2020 from an estimated $22bn in 2012 and $19.1bn in 2011.
Next year and in 2014, spending will average between $24bn and $25bn, BP told analysts in its first strategy update since striking a series of deals aimed at getting its Russian and US operations back on track.
The so-called “upstream” oil and gas production arm of the business that generates the bulk of profits will absorb more of that spending too - 80 percent up from 70 percent at present, further reducing the importance of its refining and marketing, trading and other non-production activities.
The extra spend will be financed by higher cashflow from operations and asset sales of between $2bn and $3bn a year. The company reaffirmed a target it set at the start of the year to increase operating cash flow by 50 percent by 2014 versus 2011.
Like all top investor-owned western oil firms, BP is struggling to increase output and reserves as nations guard their resource wealth jealously, and spending ever more to find and develop new supplies. Unlike its peers though, BP has had some difficult recent years in the United States and Russia - which contribute about half the company’s output.
In order to pay its dues for the oil spill and refocus its Russian strategy, BP has undergone a massive rearrangement of assets with total completed and planned divestments of $65bn - about half its total market value. BP’s stock market value “discount” to its peers like Royal Dutch/Shell and Exxon Mobil amounts to tens of billions of dollars as a result of its US and Russian issues, analysts believe, but although the divestments were to a large extent forced upon it, Chief Executive Bob Dudley argued that they had also made BP simpler and easier to manage.
“We have sold 50 percent of our upstream installations, one third of our wells and half of our pipelines,” Dudley said, “yet we have only lost 9 percent of our production and 10 percent of our reserves. That makes us a simpler company.”
Dudley also agreed the company was taking a route focused more on oil and less on gas than some of its rivals. BP is set to retreat in the rankings of Liquefied Natural Gas (LNG) producers over the coming years, although in barrels of oil equivalent terms, its oil and gas output levels are about equal to each other.
reuters
