As BP announced its financial results for the third quarter of 2011 group chief executive Bob Dudley today set out more details on BP’s future direction and strategic priorities, saying the company had reached a clear turning point.
Progress made through 2011 in reshaping and focussing the company is creating a stronger and safer BP, able now to deliver both sustainable growth and higher shareholder returns.
“ The past year has been unprecedented in its challenges; and BP has responded well. We have laid firm foundations for the future — in safety, in our organisation and in developing new growth opportunities ,” said Dudley.
“ We have now reached a definite turning point. Our operations are regaining momentum and we are facing the future with great confidence. I believe we will build on our strengths to substantially grow operating cash flows, allowing us to directly increase returns to shareholders as well as invest for future growth .”
3Q 2011 results
Turning point
Previewing a presentation today to the financial community, Dudley said that October 2011 had marked a turning point in the company’s oil and gas output: “ As our extended turnaround programme moves towards completion we are seeing production return, particularly from Angola, the UK North Sea and the US Gulf of Mexico, where we produce our higher-value barrels ,” he said.
While future divestments will impact reported output, Dudley said he is confident that underlying momentum has returned.
Focussed investment, managed portfolio
Growing cash flow
Dudley said he expects this sharper focus, together with new projects coming online in both the upstream and downstream and the completion of Gulf of Mexico Trust Fund payments, to significantly boost BP’s annual operating cash flow. He said he expects cash flow to grow by around 50 per cent by 2014. This assumes a $100 per barrel of oil environment in 2014, compared to an average oil price for the first nine months of 2011 of approximately $112. Around half of the improvement would be expected to come from ending Trust Fund payments and the balance from operations.
“ From 2011 through 2014 we expect to bring 17 material new upstream projects into production. The cash margins per barrel on these projects are projected to be double the average of our existing portfolio, significantly boosting our cash flow ,” he said.
Dudley said he expected around half the projected additional cash flow to be used for increased investment in the company’s project inventory and half to be available for other purposes, including increased distributions to shareholders.
“ Stronger cash flow from a more focussed BP, together with increased divestment proceeds will allow us to maintain a strong balance sheet while investing in projects for future growth, ” he said. “ It will also enable us to target higher distributions to shareholders, considering both dividends and share buybacks.
“ We expect to review our 2012 distribution plans in February, adjusting them in line with the improving circumstances of the firm .”
He added that BP also intended to provide more detailed financial reporting of significant downstream businesses such as lubricants and petrochemicals from 2012 onwards.
2011 progress
Dudley said he has been encouraged by the significant progress BP has already made in 2011: “ These past 12 months have been our most successful for a decade in gaining new access for exploration – with 67 new exploration licences in 11 countries — and we have completed major deals to enter both Brazil and India. We have also agreed asset sales totalling $26 billion. ”
BP’s refining and marketing businesses are on track to deliver record earnings in 2011. “ We believe the focussed, high-quality nature of our downstream businesses already make them world class, generating significant profit and cash for the group ,” Dudley said. The segment will benefit further when the major upgrade of the Whiting refinery in the US is completed in 2013.
BP has made good progress in embedding enhanced safety and operational risk management throughout the company’s operations with the introduction of the new Safety & Operational Risk organisation, Dudley said. He also highlighted the new drilling standards that have been introduced for the Gulf of Mexico and globally, that all operations were under a single Operating Management System, and that most of the 48 major upstream turnarounds were now complete.
Dudley said BP had also reshaped and simplified how it operates: “ We have re-structured our upstream business into three main operating divisions, and have moved to a simpler and more centralised organisation that will drive better and more sustainable performance in safety, quality and efficiency .”
Gulf of Mexico
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Source: BP, October 25, 2011