BP Focuses On Refining for $3B Profitability Boost
March 02, 2010
BP PLC (BP) said Tuesday it will focus on improving the profitability of its refining operations over the next two to three years to boost the company's annual underlying pretax profit by more than $3 billion.
The U.K. energy giant is striving to carry forward the momentum from a successful restructuring program that cut cash costs more than $2.4 billion in 2009 and made it the best performing major oil company last quarter.
"While our portfolio ranks amongst the best in the industry, our financial performance has yet to reflect this," said BP Chief Executive Tony Hayward. "Our direction is clear: the unrelenting pursuit of competitive leadership in respect of capital costs, capital efficiency and margin quality."
The bulk of the improvement is being targeted at BP's refining and marketing segment. BP aims to have boosted the unit's underlying pretax profit by $2 billion within two or three years, from a base of $3.6 billion in 2009.
The push for cost efficiency in refining will be heavily focused on the U.S. and achieved through better planning and execution, improved contractor management and lower cost sourcing of goods and services, said BP's refining Chief Iain Conn.
The remaining improvement in profitability is being targeted at BP's upstream division. BP's spend on major oil and gas projects over the last five years has been on average 20% above the company's estimate at the time of sanction, said BP's upstream chief Andy Inglis. BP could save $700 million a year through better project management and $500 million a year by improving the efficiency of its drilling operations, he said.
A big part of these savings will be driven by BP's plans to centralize and standardize implementation of all its major projects in the most fundamental reorganization of its exploration and production division since the company's 1998 merger with Amoco, said Inglis.
BP reiterated its target to grow oil and gas output by between 1% and 2% a year to 2015 and said it has increased confidence of being able to maintain this growth to 2020. This output growth will be accompanied by "gently rising" capital investment over the period, from a base of $20 billion in 2009, Hayward said.
The key drivers of growth beyond 2015 will be deep water fields in the Gulf of Mexico, unconventional gas, and from increasing output from giant oil fields in places like Iraq and Russia. Technological advances in areas like seismic surveys, subsea well intervention and unconventional oil and gas could add an extra 10 billion barrels of oil equivalent of reserves from existing discoveries, Inglis said. Applying technology like this to Iraq's Rumaila oil field, could make it the second most productive field in the world by 2015, he said.
BP and China National Petroleum Corp. have pledged to almost triple production at Rumaila to 2.85 million barrels a day. The companies will receive a fixed fee of $2 for each additional barrel of oil produced from Rumaila above the current level of 1.07 million barrels a day.
BP's total capital expenditure in 2010 will be unchanged from the previous year at around $20 billion.
At 1648 GMT BP shares were up 0.7%, or 4 pence, at 600p. The stock has risen 42% in value over the past 12 months.
Source: Dow Jones Newswires
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