BP Tries to Regain Footing as It Recovers From Spill Energy
BP Tries to Regain Footing as It Recovers From Spill
Company aims to show growth but some aren’t sure it is primed for success
BP PLC is under pressure from investors and analysts to show it can rejoin the ranks of the world’s biggest oil companies now that the costs of the deadly Gulf of Mexico spill have largely come under control.
The British energy company has gone on the offensive in recent weeks to show it has a strategy for growth. Last month, for instance, BP flew analysts and investors out to Azerbaijan for a sunny few days of wine, sturgeon kebab and talk of the embattled British oil company’s future.
Bernard Looney, BP’s new chief of exploration and production, joined a tour of about 30 analysts and investors to a yard south of Baku where drilling platforms were being assembled for work in the Caspian Sea. A day earlier, at the plush Fairmont Hotel in Baku’s famous Flame Towers, Mr. Looney outlined how the company planned to add 800,000 barrels a day of new oil and gas production by 2020.
“This is where it gets really exciting,” Mr. Looney told the group, according to a presentation on BP’s website. “We will grow through 2020. That growth is imminent and becoming more tangible each day,”
Ahead of its second-quarter earnings results on Tuesday, BP is telling investors that it can finally turn to its future, after six years of retrenchment following the 2010 Macondo well blowout that killed 11 workers and spilled millions of barrels of crude into the Gulf. The company said this month that it expects the total cost of the disaster will be $61.6 billion, including litigation, clean up costs and government fines.
BP has long pointed to the lingering costs of the Deepwater Horizon spill in the Gulf as a reason for its performance over the past six years, a span where it sold off around $50 billion in assets, cut its exploration budget by almost two-thirds and scaled back its boldest ambitions.
BP’s share price still hasn’t recovered to the level where it was trading before the 2010 disaster, while Royal Dutch Shell PLC and Exxon Mobil Corp. are up around 20% and 34% respectively over the same period.
While BP has retrenched, Shell has gobbled up BG Group PLC in a roughly $50 billion acquisition that completed this year. Exxon appears to have won a bidding war to buy InterOil Corp. , which holds six licenses to develop energy projects in Papua New Guinea.
Now, BP no longer has Macondo to blame for its inaction.
“BP is juggling a lot of balls up in the air at the moment,” said Paul Mumford, a fund manager at Cavendish Asset Management. “But now that Macondo is behind them, I would hope they can move forward without experiencing any other mishaps.”
Analysts and investors aren’t so sure the company is primed for success.
Analysts point to longstanding delays over payments in Egypt, where BP and partners are investing around $12 billion in a huge gas project. There are also risks that BP’s new projects won’t be as productive as the company believes now.
And then there is the oil price. Brent crude, the international benchmark, has been stuck below $50 a barrel for most of this month after a rally this spring fizzled out. BP says it is reducing costs so that in 2017 it can invest in new production while continuing to meet dividend payments without borrowing at oil prices between $50 to $55 a barrel.
“BP is at an interesting stage,” said a BP investor. “Macondo forced them to shrink and the analysts have become more positive. But the oil price has been slipping and the question is how much of their resources are economic at current oil prices,” the investor added.
Over the next few years, BP is focusing on expanding in areas where it already has a position, such as Azerbaijan and Egypt, where there is already existing infrastructure such as oil and gas pipelines, a trained and experienced labor force and longstanding relationships with host governments. Those factors help to lower risks that can delay projects and increase costs.
In his presentation in Baku, Mr. Looney detailed BP’s plans to bring 800,000 barrels of oil equivalent a day of new production by 2020 from a baseline of 2015. That number includes around 500,000 barrels of oil equivalent a day of capacity coming online by the end of next year.
“I wouldn’t say they [BP] eliminated all the risks,” said Jefferies oil analyst Jason Gammel, who was on the trip to Baku. “But it certainly was a very credible plan.”