Clear priorities in a changing world - Lamar McKay discusses BP’s future

Last edited: 28 February 2017

As BP updates its strategy for a changing world, BP Magazine talked to deputy chief executive Lamar McKay about resilience to different price environments, growth on the way and investing in lower carbon technologies

Why is BP updating its strategy now?

I think it is an important time to paint the picture of BP’s future. We all know the world is changing very quickly and no more so than in the energy sector given the pricing issues, the penetration of electric vehicles and climate change. We’ve also come out from a tough period of time dealing with the tragic accident in the Gulf of Mexico and meeting our obligations and commitments, and we have a chance to look forward a bit more now. 

What does the strategy look like?

It is based around four pillars – shifting to gas and advantaged oil in the Upstream, market-led growth in the Downstream, venturing and low carbon across multiple fronts, and modernising across the business to drive productivity.

In Upstream, our shift to gas will continue and will be complemented by advantaged oil. By that, we mean barrels that we can produce at a higher margin, or those that we can produce at a lower cost, so we can be more resilient to whatever environment we face. 

If you look at the recent deal in Abu Dhabi, that is a 40-year agreement for resources we know well. Another good example is the extension we’ve just signed in the Azeri-Chirag-Gunashli oil field in Azerbaijan, which extends the production sharing agreement (PSA) to 2050. These are examples of advantaged oil because the infrastructure is already in place and we don’t need to add anything new, we just keep going.

The Downstream strategy is about opening up new markets and new customers, providing new and innovative products, and continuing to operate exceptionally well.  For example, our focus on retail growth is demonstrated by our planned partnership with Woolworths in Australia. We’ve seen the model for this in the UK where we partner with Marks and Spencer, and it has worked very well.

Another pillar is being involved in the transition to a lower carbon future. We’re going to do more venturing, more experimentation and more partnerships. In other words – not very high capital acquisitions, but working at the grass roots with new technologies; understanding which ones may work and make great investments for the future.

Finally, modernisation is crucial. There is a digital transformation underway, for example using data to intervene in issues, or to optimize maintenance programs. We’ve seen examples where, if you get the right data in the right hands, there are up to 35% cost efficiencies in terms of revamping our processes. 

BP is planning to grow its low carbon business, how so?

Firstly is it important to say that I think we have a great set of businesses in Alternative Energy already, with US wind and Brazilian biofuels. We’ll continue to look for opportunities to grow these businesses. In addition to this we’ve been exploring what we call new energy frontiers, which we’ve organised into five different areas.

The first is advanced mobility, which looks at factors like electric vehicle penetration, retail footprint and how we partner with manufacturers. 

The second is power and storage. This is the generation of electricity, and how that electricity can be moved around, sold, traded and stored, as well as how we can use natural gas synergistically with renewables, as well as, new technologies like fuel cells.   

The third one is carbon management. We have worked on carbon usage and storage for a long time and are now looking for specifics around what will make it more cost effective and scalable.

The fourth is bio-products. A recent example is our investment in Fulcrum Energy, which is biojet fuel from waste. We’ve signed a contract with this company to take their biofuel product and own part of the business. We know that the aviation industry is hungry for bio-derived jet fuels – so this complements our business well. We’ve also just introduced PTAir, a lower carbon petrochemical product.

The final one, which cuts across everything, is digital transformation. We’re looking at technologies which may totally transform the way we work. Things like block chain technology, artificial intelligence and cognitive computing

What are BP's investment plans in this area?

We’re planning on investing around $200 million a year, for now, which is enough to invest in a number of different companies, participate on their boards, understand what they’re doing and influence their work and development.

This is a multi-decade transition to a lower carbon future, so we’re not going out to buy multi-billion dollar companies and place big bets on individual technologies – because the future is pretty uncertain right now.

Instead, we’re going for high experimentation, anticipating a high failure rate. But when we identify ideas that are going to work we will be well placed to press the accelerator when they do.

Finally, BP has discussed its strong platform for growth. What underpins this?

"Relationships are a vital part of this strong platform. When you travel around the world, most of the places we do business we have been in for decades. We work hard on relationships and they are part of our DNA."
Lamar McKay

One example is that we expect 800,000 barrels per day of new oil and gas production from Upstream projects coming along before the end of this decade – that is a lot. The cash that will be generated by this new production is about 35% better than the current portfolio.

So, not only are we increasing our volume, we are increasing the margin too. And the new deals we announced at the end of 2016, like the Abu Dhabi concession, are in addition to this. Put those projects and additions together and you have a million barrels a day of new oil and gas production by 2021.

In the Downstream, we’re going from strength to strength in terms of operating assets better, introducing strong new products and looking for new opportunities in growth areas like Mexico.

In emerging markets like China we are also seeing opportunities. We’re exploring carbon trading and how shale gas could be developed as well as new technology ventures for car and battery manufacturers.

Finally, relationships are a vital part of this strong platform. When you travel around the world, most of the places we do business we have been in for decades. We work hard on relationships and they are part of our DNA.

We think that our portfolio differentiates us from others and supports disciplined growth, and with our refreshed strategy we are in a strong position to generate good value for decades to come.

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