BP hunkering down as oil woes persist
BP is bracing for a long recovery from the recent oil bust, planning to run its business next year under the assumption that crude prices will continue to hover around $35 a barrel.
The British oil supermajor said Thursday that it aims to balance its 2021 budget, invest $12 billion in the business and continue paying shareholders a healthy dividend with oil around $35. The company, which plans to cut $2.5 billion from its operating budget by the end of 2021, announced plans Monday to lay off nearly 10,000 workers, 14 percent of its workforce, by the end of the year.
“It’s a brutal environment that we face at the moment,” CEO Bernard Looney said in an interview published Thursday by industry research firm IHS Markit. “(Oil) has recovered a little bit over the recent weeks, but it’s a recovery from a very low point. … It’s a tough environment, and tough decisions have to be made, and we’re in the midst of doing that.”
Energy companies are slashing operating budgets, shutting in existing wells and curbing spending on new wells in the wake of the coronavirus-driven oil crash, which sent crude prices crashing from $63 a barrel in January to a record negative-$37 a barrel in April. West Texas Intermediate, the U.S. oil benchmark, has since rebounded, settling in New York at $36.34 a
“It’s a brutal environment that we face at the moment.” BP CEO Bernard Looney
barrel on Thursday.
In response to the oil bust, BP has reduced its shale spending by $1 billion this year, cutting the number of operating rigs to one, down from 13 this year. However, the company has not shut in, or temporarily closed, any of its existing wells, primarily because BP has its own trading marketplace for the oil it produces.
“We’re very fortunate in that regard,” Looney said.
Looney, in a wide-ranging interview with IHS Markit vice chairman Daniel Yergin, said BP had already significantly cut costs in the aftermath
of the 2014-16 oil bust. The company in 2016 announced plans to add 1 million barrels of oil production a day by 2021 at a cost of about $50 billion. Today, the company hopes to reach that goal while spending $35-40 billion, Looney said.
BP cut costs by using new technology, streamlining operations and shrinking its workforce. The company recently drilled a well in West Africa for $50 million, a third of the typical cost by running most of the operations out of London and reducing the number of employees it sent over, Looney said.
BP once had 30,000 employed in its upstream business, which drills wells and pumps oil and gas. Today,
the company has 17,000 upstream workers, Looney said.
“I’ve always been a big believer that the numbers are so big in the upstream that there remains enormous opportunity for improvement,” Looney said. “The things we’ve been able to do with taking people out of harm’s way and out of the field, getting costs down and improvements we can make I think are exceptional . ... I believe there is more we can do.”
BP is also cutting costs in its traditional oil and gas business as it looks to pivot toward alternative sources of energy, including solar and wind. The supermajor in February set a goal to become
a net-zero carbon emissions company by 2050 and has invested in electric vehicle charging networks in the U.K. and China.
Looney, who last month said oil demand may have peaked and may never fully recover after the coronavirus pandemic, said no one is sure what the demand for oil will look like in the future. He said, however, the world will likely require fewer fossil fuels.
“Is oil demand going to grow at 3, 4, 5 percent per annum for the next 20 or 30 years? No,” Looney said. “Oil demand growth is probably slowing.”