HOW BP FOUGHT ITS WAY OUT OF DEEPWATER
▶ Eight years after the disastrous spill, the oil giant is buoyant again with acquisitions and a boosted dividend in the pipeline
After the near collapse of his company following the 2010 Gulf of Mexico disaster and a three-year slump in oil prices, BP chief executive Bob Dudley is hardly relaxed. “It doesn’t feel like we are in a serene time for any energy company,” Mr Dudley tells Reuters.
But BP is stronger today than at any other time since the 2010 Deepwater Horizon rig accident.
With oil prices at their highest since late 2014 and BP shares back to levels not seen in more than eight years, it is once again in a position to contemplate increasing dividends and hitting the acquisition trail, Mr Dudley says.
Sitting in his office in BP’s central London headquarters in St James Square, Mr Dudley, 62, says he intends to carry on leading the company into 2020 and navigate it through a phase of expansion and more uncertainty following a tumultuous eight years at the helm.
On Tuesday, the British major said it plans to cut 3 per cent of jobs in exploration and production as part of a restructuring of its global upstream business to make the division more efficient and competitive.
A BP spokesman says the cuts of around 540 jobs from the company’s 18,000-strong total upstream workforce will be carried out by the end of the year.
The move is part of an ongoing process to simplify the company’s structure and increase efficiency, following the $50bn worth of divestments over recent years, BP says. It did not comment on any possible cost savings associated with the redundancies. The oil and gas sector is looking to retain its relevance as economies battle climate change by weaning themselves from their dependence on fossil fuels, a major source of greenhouse gas emissions.
For BP, it is a two-speed race. The 110-year old company is experiencing its fastest growth in recent history, with new oil and gasfields from Egypt and Oman to the US Gulf of Mexico, riding a tide of higher oil prices following the 2014 downturn.
It is gradually paying off more than $65 billion in penalties and clean-up costs for the Deepwater Horizon accident, which killed 11 workers.
Regarding the danger of the company going bankrupt at the time, Mr Dudley says: “The worst moment was when I heard that our debt was untradable back in the summer of 2010 ... to me that was a moment of the unthinkable was possible.”
He no longer sees BP as an acquisition target after facing years of speculation it could be bought out.
The company is focused on increasing production and cash flow while reducing its large debt pile, after which it will consider increasing shareholder returns such as dividends, although “we’re not at that point yet”, Mr Dudley says. Longer-term challenges also loom. Investors are increasingly pressing energy companies to find ways to adapt to the energy transition, and Mr Dudley is looking to strike a balance between reducing a large carbon footprint while securing revenue.
“This is the great dual challenge that the industry and BP face: how to supply the world’s energy on multiple fronts of growing population and doing it with less emissions,” says Mr Dudley, who was appointed to the helm of BP months after the April 2010 spill.
BP, like rivals such as Royal Dutch Shell, is betting on natural gas, the least-polluting hydrocarbon, to sustain an expected surge in demand for electricity as economies grow and transportation is electrified.
Gas is also playing a key role as a back-up to renewable energy such as wind and solar in power generation. To that end, BP is expanding its gas production through new projects in Trinidad and Tobago as well as Oman and Egypt.
In April, The National reported Oman, the largest Middle East oil producer outside Opec, plans to award contracts to oil majors such as BP, Shell, Total and Eni for hydrocarbon exploration over the next six months, as the sultanate looks to woo Big Oil back to increase production.
The contracts would be a mix of bilateral contracts signed with the majors as well as awards from a bid round Oman concluded last year, Oil Minister Mohammed Al Rumhy told The National. The sultanate’s Oil Ministry had in 2017 offered four blocks in a licensing round to attract international oil and gas companies back.
The country would look to engage with Chinese and Indian energy players to increase domestic output, he said.
Several major oil companies exited Oman’s various concessions in the last few years as low crude prices made profitability challenging in the country’s maturing fields.
While any new crude deals would be considered, for BP, gas accounts for over 55 per cent of its production.
“I am optimistic about climate change if you can combine renewables – wind and solar – and natural gas. To me, that’s part of the big answer,” Mr Dudley tells Reuters.
In the early 2000s, BP introduced the slogan Beyond Petroleum and adopted a sunburst logo after launching an $8bn expansion into renewables.
The company was forced to write off its solar business 10 years later, but still retains a large US onshore wind business and biofuels plants.
Now, Mr Dudley is taking a cautious approach, investing in smaller start-up companies in renewables, clean fuels and battery charging docks.
“We have to go slow and pick the right low-carbon fuels,” he says. “BP will be a broad-based company that supplies all forms of energy that are needed that can be done
BP will be a broad-based company that supplies all forms of energy that can be done economically BOB DUDLEY Group chief executive, BP
economically.” The company will invest $500 million per year in low-carbon energy and technology in the coming years out of a total spending of $15bn to $17bn, a range which Mr Dudley says the company could stay within.
“If a shareholder or someone else came to BP tomorrow and said here is $10bn to invest in low-carbon energies for us, we would not know how to do that yet.”
BP is also expanding its global network of petrol stations and investing in convenience stores and charging spots, hoping to retain its dominant brand as electric vehicles become more popular.
“I’m not worried about BP in this area. The most strategic thing we can do is to get our balance sheet strong so that when we have the firepower we can do anything in these areas.”
BP expects demand for oil to peak in the late 2030s, after which it will plateau and gradually decline.
For BP, whose roots go back to 1908 with the discovery of Iran’s first oilfield, the days of black gold are far from dead.
While oil prices in recent weeks hit their highest levels since late 2014 at $80 a barrel, BP is working on an assumption that prices will remain in the range of $50 to $65 per barrel as a result of surging US shale output and Opec’s ability to crank up output.
Mega projects involving complex, multi-billion-dollar facilities such as huge offshore platforms that came to symbolise the technological prowess of the world’s top oil companies are most likely a thing of the past, Mr Dudley says.
Instead, BP is opting for phased developments that require less capital and less time to build, making them easier to control at a time of uncertainty over oil prices.
“Many of the companies in the industry are remembering the lesson learnt during the $100 oil era, [which] is take it in phases,” Mr Dudley says.
BP is applying this approach in many of its main production hubs such as Egypt and the Gulf of Mexico, where it can continue raising production into the early 2020s, he says.
BP’s oil and gas output is set to reach around 4 million barrels per day by the end of the decade, a level last seen in 2009, with more than a fifth of that coming from projects started since 2016. It is partnering leading oil-producing nations that have some of the lowest costs of extraction, such as Oman, Azerbaijan and most importantly Russia, where BP has a 19.75 per cent stake in Rosneft and from where it draws one third of its production.
BP has a relatively small shale business, focused mostly on gas, but Mr Dudley is considering growing in the sector, which has attracted billions of dollars in investments in recent years. “[Shale] comes down to economics and competitiveness on what is on offer. So far they feel overheated ... it is not a burning need to fill that in the portfolio, but if it is attractive, we will.”
BP could place a bid for BHP Billiton’s shale assets, Mr Dudley says.
Its position in Russia has put the company in the spotlight as the United States and Europe tighten sanctions on Moscow.
Mr Dudley, who sits on the board of Rosneft, believes BP can continue there and act as a bridge between countries.
“We don’t apologise for doing business in Russia,” he says. “Certainly today, within the boundaries of the sanctions, we can and do operate without issues.”