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BP plans for low oil-price future Company executives say company is moving ahead with new business efficiencies while carefully managing capital expenditure Alan Bailey Petroleum News
BP is continuing to implement business efficiencies and carefully manage its capital spending to accommodate an expected continuation of relatively low oil prices, company executives said during a second quarter 2017 earnings call on Aug. 1. BP Group Chief Executive Bob Dudley said that he expected unit production costs this year to be more than 40 percent lower than in 2013.
“Around 75 percent of these cost reductions are from efficiency, so these should be sustainable in the longer term,” Dudley said. “Beyond this we are pushing ahead with some really transformational changes as we digitize the business at pace. This stretches from subsurface modeling to wells construction to plant operations and all the way to electronic procurement.”
Petroleum News has previously reported that improved operational efficiencies coupled with the use of computer technology to analyze field data have helped maintain oil production levels in the BP-operated Prudhoe Bay field, despite a cutback in the number of drilling rigs that BP operates on the North Slope.
Dudley said that BP’s current cost projections do not fully take into account cost savings from some new technologies, including the use of sensors and automation in drilling operations.
Capital expenditure targets Brian Gilvary, BP Group chief financial officer, said the company did not anticipate an annual capital expenditure above $17 billion through to 2021 and that the company “will be very disciplined about that.” However, if oil prices remain at about $50 per barrel, capital expenditure in 2018 would likely be closer to $15 billion. Capital spending at this lower level would not materially impact BP’s growth objectives. However, $15 billion does not represent a capital expenditure floor and the company would continue to drive higher levels of capital efficiency if oil prices remain structurally lower, Gilvary said.
Dudley said that, although BP would seek to further optimize its capital expenditure at Brent crude prices below $50 per barrel, in the first half of 2017 BP’s organic cash flows were comfortably in balance at a $50 oil price level. And, although there is always the potential for geopolitical events to trigger oil price spikes, BP is planning for an oil price around $50 over the next five years, with a target breakeven price well into the $30s. With U.S. shale oil becoming the swing producer in the global oil industry, a continuing oil price around $50 will continue to drive the industry’s cost structure lower, Dudley said.
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