Tony Hayward's speech at the 2008 AGM
Tony Hayward's speech at the 2008 Annual General Meeting17 April 2008
Speaker: Tony Hayward
Speech date: 17 April 2008
Venue: ExCel centre, Docklands, London
Title: Group Chief Executive
Speech date: 17 April 2008
Venue: ExCel centre, Docklands, London
Title: Group Chief Executive
Ladies and gentlemen, good morning. It’s good to see so many familiar faces here. This is my first annual meeting as chief executive and it’s an honour and privilege to be in this role as BP enters its 100th year.
I first joined BP as a young geologist in 1982 and my career with the company has taken me from the North Sea, to the interior of China and the mountains and jungles of South America. I’ve had a great time. Since being nominated as chief executive last year I’ve visited many of our operations worldwide - and everywhere I have felt a real sense of pride about this company, its people, its operations and basically what it stands for.
But that sense of pride does not mean I suffer any illusions. After a challenging few years, BP needs to raise its game. So today, I want to look to the future and share with you my confidence about how we intend to do just that.
Let me begin with 2007. BP’s replacement cost profit for 2007 was down 22 per cent to $17.3 billion. That number tells you a lot. It came at a time when the external trading environment was, by and large, extremely robust. The oil price hit a record of $96 at year end and BP’s average liquid realisation in 2007 rose by more than $8 to $67.45. Our competitors were more successful at exploiting this environment than we were.
I first joined BP as a young geologist in 1982 and my career with the company has taken me from the North Sea, to the interior of China and the mountains and jungles of South America. I’ve had a great time. Since being nominated as chief executive last year I’ve visited many of our operations worldwide - and everywhere I have felt a real sense of pride about this company, its people, its operations and basically what it stands for.
But that sense of pride does not mean I suffer any illusions. After a challenging few years, BP needs to raise its game. So today, I want to look to the future and share with you my confidence about how we intend to do just that.
Let me begin with 2007. BP’s replacement cost profit for 2007 was down 22 per cent to $17.3 billion. That number tells you a lot. It came at a time when the external trading environment was, by and large, extremely robust. The oil price hit a record of $96 at year end and BP’s average liquid realisation in 2007 rose by more than $8 to $67.45. Our competitors were more successful at exploiting this environment than we were.
The root cause of our financial performance is to be found in our operations. When I took over as chief executive last May, I said that we would focus on three basic priorities: safety, people, and performance. Everyone at BP understands those priorities. And while I am in this role they will remain the priorities.
Safety is our number one priority and in 2007 our overall safety record continued to improve. Over the last eight years our safety performance according to the standard industry measure has improved threefold and is now among the best in our industry.
Our intense focus on process safety continues. We are making good progress in addressing the recommendations of the Baker Panel and have begun to implement a new Operating Management System across all of BP’s operations. This is aimed at ensuring that our operations across the world look and feel the same everywhere - and perform to the same high standard.
Great people are at the heart of everything that makes BP distinctive. Our staff have to deal with a tremendous amount of change right now - and I’d like to thank them all for their hard work and commitment. We all share a desire to restore the company’s performance.
Safety is our number one priority and in 2007 our overall safety record continued to improve. Over the last eight years our safety performance according to the standard industry measure has improved threefold and is now among the best in our industry.
Our intense focus on process safety continues. We are making good progress in addressing the recommendations of the Baker Panel and have begun to implement a new Operating Management System across all of BP’s operations. This is aimed at ensuring that our operations across the world look and feel the same everywhere - and perform to the same high standard.
Great people are at the heart of everything that makes BP distinctive. Our staff have to deal with a tremendous amount of change right now - and I’d like to thank them all for their hard work and commitment. We all share a desire to restore the company’s performance.
We are taking action to continually build the capability of our people. In 2003 we established a Projects Academy at the Massachusetts Institute of Technology which has trained almost 250 of our senior project staff and made a significant impact on our major project delivery. Over the last year we have established an Operations Academy – along the same lines - which will train our operations staff in the new common operating system.
We have also embarked on an extensive recruitment effort, adding two thousand engineers last year. Graduate recruitment has also been stepped up and is now running at 750 a year, up from less than 300 three years ago. These new recruits are the future of BP.
When it comes to performance, missing revenues are being progressively restored and we’re taking action to reduce complexity. There is much more work to do here, but the operational momentum which began to build at the end of 2007 continued into the first quarter of 2008 and should begin to feed through into the bottom line in the second half of 2008 and into 2009.
2007 saw us stabilise our operations and meet some important milestones.
We have also embarked on an extensive recruitment effort, adding two thousand engineers last year. Graduate recruitment has also been stepped up and is now running at 750 a year, up from less than 300 three years ago. These new recruits are the future of BP.
When it comes to performance, missing revenues are being progressively restored and we’re taking action to reduce complexity. There is much more work to do here, but the operational momentum which began to build at the end of 2007 continued into the first quarter of 2008 and should begin to feed through into the bottom line in the second half of 2008 and into 2009.
2007 saw us stabilise our operations and meet some important milestones.
In Exploration & Production, we started up nine projects – six in the fourth quarter alone - including the delayed Atlantis platform in the deepwater Gulf of Mexico, Greater Plutonio in Angola, the Cashima and Mango natural gas fields offshore Trinidad, and King, in the Gulf of Mexico – which at 5,500 ft below sea level is the world’s deepest subsea pump.
In 2007 we continued to add to our resource base. Gross resource additions in 2007 amounted to 2.4 billion barrels of oil equivalent. Our 2007 reserve replacement ratio at year-end prices was 112 per cent on an SEC basis. This is the 14th year in a row that we have reported a reserve replacement ratio of more than 100 per cent - a track record which is unequalled in the industry.
During 2007, we also made significant progress in restoring availability at both our Texas City and Whiting refineries in the US. Since the end of the year Whiting has been restored to its full capacity and we’ve successfully restarted the sour crude distillation unit at Texas City. Over the past six months, we also completed the largest turnarounds in the history of both our Toledo and Carson refineries in the US – both important achievements in ensuring the integrity and reliability of our plant.
In Alternative Energy, we are creating material growth options with a portfolio of low carbon energy sources including solar, wind, hydrogen power, biofuels, clean coal and carbon capture and storage. We have invested more than $1.5 billion since 2005 and in 2008 plan to invest a further $1.5 billion. In the fourth quarter of 2007 we achieved another success by starting operations at Cedar Creek, one of the largest wind facilities in the US.
In 2007 we continued to add to our resource base. Gross resource additions in 2007 amounted to 2.4 billion barrels of oil equivalent. Our 2007 reserve replacement ratio at year-end prices was 112 per cent on an SEC basis. This is the 14th year in a row that we have reported a reserve replacement ratio of more than 100 per cent - a track record which is unequalled in the industry.
During 2007, we also made significant progress in restoring availability at both our Texas City and Whiting refineries in the US. Since the end of the year Whiting has been restored to its full capacity and we’ve successfully restarted the sour crude distillation unit at Texas City. Over the past six months, we also completed the largest turnarounds in the history of both our Toledo and Carson refineries in the US – both important achievements in ensuring the integrity and reliability of our plant.
In Alternative Energy, we are creating material growth options with a portfolio of low carbon energy sources including solar, wind, hydrogen power, biofuels, clean coal and carbon capture and storage. We have invested more than $1.5 billion since 2005 and in 2008 plan to invest a further $1.5 billion. In the fourth quarter of 2007 we achieved another success by starting operations at Cedar Creek, one of the largest wind facilities in the US.
It is because of these improvements in operational performance that the board felt it was right to increase the dividend in the fourth quarter of 2007 by 31 per cent on the previous year. That was a statement of confidence in the future.
Over the last month or so we have set out a very clear medium-term strategy which is based on four things:
Firstly, upstream growth. Our Exploration & Production segment, led by Andy Inglis, has a portfolio of future projects that gives us great confidence in the future.
Over the last few years we have focused on a new wave of access, gaining opportunities in Algeria, Oman, Libya, Colombia, Pakistan, Canadian heavy oil and coal bed methane. In Russia, with TNK-BP, we have a unique position in one of the world’s most prolific hydrocarbon provinces.
In the Gulf of Mexico we are on course to start-up Thunderhorse, the world’s largest semi-submersible platform - by the end of 2008. Despite the challenges of the last three years, when Thunderhorse starts up it will be a powerful symbol of the new projects which BP is bringing onstream.
Over the last month or so we have set out a very clear medium-term strategy which is based on four things:
Firstly, upstream growth. Our Exploration & Production segment, led by Andy Inglis, has a portfolio of future projects that gives us great confidence in the future.
Over the last few years we have focused on a new wave of access, gaining opportunities in Algeria, Oman, Libya, Colombia, Pakistan, Canadian heavy oil and coal bed methane. In Russia, with TNK-BP, we have a unique position in one of the world’s most prolific hydrocarbon provinces.
In the Gulf of Mexico we are on course to start-up Thunderhorse, the world’s largest semi-submersible platform - by the end of 2008. Despite the challenges of the last three years, when Thunderhorse starts up it will be a powerful symbol of the new projects which BP is bringing onstream.
Between 2007 and 2009 we expect to bring onstream more than 25 projects adding 650,000 barrels a day of new production.
These new projects reflect building momentum in our operational delivery. This is planned to continue through 2012 when we expect production of around 4.3m barrels per day, assuming a $60 oil price.
Looking further to the future - the scale and quality of our resource base gives us confidence that we can maintain production at not less than four million barrels a day until 2020 without any further exploration success or new access. We confidently expect to do better than that.
Secondly, the turnaround of the downstream business. The Refining & Marketing team, under the leadership of Iain Conn, has embarked on a major intervention to restore the performance of our downstream business: to restore refining availability; to simplify the business by focusing on just six geographically based fuels value chains; and to improve the cost efficiency of the business. As part of the repositioning of this business we have announced plans to sell our company-owned company-operated convenience sites in the US.
Thirdly, corporate simplification. There is a significant competitive gap with our peers. If we are going to close that gap, BP needs to undergo a process of change as big as anything it has achieved in the last twenty years.
Our way of doing business is too complex, we are overly bureaucratic, not consistent enough and our costs are too high. In October last year we announced a Forward Agenda to simplify BP and to fundamentally change the company culture and our way of operating.
These new projects reflect building momentum in our operational delivery. This is planned to continue through 2012 when we expect production of around 4.3m barrels per day, assuming a $60 oil price.
Looking further to the future - the scale and quality of our resource base gives us confidence that we can maintain production at not less than four million barrels a day until 2020 without any further exploration success or new access. We confidently expect to do better than that.
Secondly, the turnaround of the downstream business. The Refining & Marketing team, under the leadership of Iain Conn, has embarked on a major intervention to restore the performance of our downstream business: to restore refining availability; to simplify the business by focusing on just six geographically based fuels value chains; and to improve the cost efficiency of the business. As part of the repositioning of this business we have announced plans to sell our company-owned company-operated convenience sites in the US.
Thirdly, corporate simplification. There is a significant competitive gap with our peers. If we are going to close that gap, BP needs to undergo a process of change as big as anything it has achieved in the last twenty years.
Our way of doing business is too complex, we are overly bureaucratic, not consistent enough and our costs are too high. In October last year we announced a Forward Agenda to simplify BP and to fundamentally change the company culture and our way of operating.
BP now has just two main business segments: Exploration & Production and Refining & Marketing. This will simplify both our corporate governance and decision making.
Our objective is to reduce the corporate overhead by between 15-20 per cent. We are starting from the top with fewer layers of management and a smaller corporate infrastructure. We are cutting bureaucracy, eliminating unnecessary internal processes and strengthening our frontline operations.
The final element of our strategy is realising value for shareholders in our Alternative Energy business. BP rightly won great respect when, in 1998, it became the first oil major to recognise the importance of tackling climate change. Since 2001 what many now call “Clean Tech” has become the fastest growing sector of the energy market, growing by 30 per cent a year globally - and thanks to our early move BP’s alternative energy business is one of the biggest players in this area.
Alternative Energy is an innovative business, still in the investment phase. Our objective over the course of 2008 and beyond is to create equity value for our shareholders by raising this business’s visibility. We will examine a number of options, including joint ventures, partnerships and even, where appropriate, partial public offerings.
Ladies and gentlemen, I believe we have a compelling medium term strategy. But my confidence in the future is based on more than the near term outlook. I fundamentally believe in this business and in BP.
Our objective is to reduce the corporate overhead by between 15-20 per cent. We are starting from the top with fewer layers of management and a smaller corporate infrastructure. We are cutting bureaucracy, eliminating unnecessary internal processes and strengthening our frontline operations.
The final element of our strategy is realising value for shareholders in our Alternative Energy business. BP rightly won great respect when, in 1998, it became the first oil major to recognise the importance of tackling climate change. Since 2001 what many now call “Clean Tech” has become the fastest growing sector of the energy market, growing by 30 per cent a year globally - and thanks to our early move BP’s alternative energy business is one of the biggest players in this area.
Alternative Energy is an innovative business, still in the investment phase. Our objective over the course of 2008 and beyond is to create equity value for our shareholders by raising this business’s visibility. We will examine a number of options, including joint ventures, partnerships and even, where appropriate, partial public offerings.
Ladies and gentlemen, I believe we have a compelling medium term strategy. But my confidence in the future is based on more than the near term outlook. I fundamentally believe in this business and in BP.
There are those who are beginning to question the very purpose of large integrated international oil companies like BP.
I strongly disagree with them. To misquote Mark Twain “Reports of our death are greatly exaggerated.”
We are supplying a growth market. The demand for energy – to power the basic needs of life: light, heat and mobility – continues to expand. The International Energy Agency forecast an increase of more than 50 per cent in global energy demand between now and 2030. Furthermore, as far as humanity’s big challenges are concerned – climate change, energy security and energy poverty – we’re a big part of the solution, not part of the problem.
For the last thirty years, the state-backed national oil companies of the Middle East, Russia and elsewhere, have controlled more than 90 per cent of the world’s oil reserves. There is nothing new in that. And that period has been accompanied by the development of a vast global market in traded oil and, increasingly, natural gas.
That market is a remarkable thing. It keeps the world’s energy flowing, even during periods of crisis. And it is international oil companies which help to make that market work. BP plays its part by building partnerships with resource holders and deploying our powerful competitive advantages: our know-how, skill in managing risky projects, technology, capital, a global brand and our unwavering commitment to the principle of mutual advantage - to do the right thing.
I strongly disagree with them. To misquote Mark Twain “Reports of our death are greatly exaggerated.”
We are supplying a growth market. The demand for energy – to power the basic needs of life: light, heat and mobility – continues to expand. The International Energy Agency forecast an increase of more than 50 per cent in global energy demand between now and 2030. Furthermore, as far as humanity’s big challenges are concerned – climate change, energy security and energy poverty – we’re a big part of the solution, not part of the problem.
For the last thirty years, the state-backed national oil companies of the Middle East, Russia and elsewhere, have controlled more than 90 per cent of the world’s oil reserves. There is nothing new in that. And that period has been accompanied by the development of a vast global market in traded oil and, increasingly, natural gas.
That market is a remarkable thing. It keeps the world’s energy flowing, even during periods of crisis. And it is international oil companies which help to make that market work. BP plays its part by building partnerships with resource holders and deploying our powerful competitive advantages: our know-how, skill in managing risky projects, technology, capital, a global brand and our unwavering commitment to the principle of mutual advantage - to do the right thing.
International oil companies have always operated on the frontiers of the industry. And that is where BP is happiest, doing the tough stuff that others cannot or choose not to do. From our roots in those Edwardian days when the company was formed, prospecting for oil among the dunes of Persia - it is the same frontier spirit that is evident today as we develop the deep waters of Angola, the Gulf of Mexico and Egypt; it is evident in the Baku-Tbilisi-Ceyhan pipeline, constructed across three nations emerging from the shadow of the Cold War; and it is to be found in Russia and China, where we are among the biggest foreign energy investors.
Today, we continue to push technological frontiers, exploiting tight gas, increasing reserves through enhanced oil recovery techniques, developing advanced seismic imaging techniques and pioneering research into the next generation of biofuels - which will based on more efficient molecules and will not be derived from food crops. These are just a few examples of the new technologies at the heart of BP.
So - the frontier is where our role is. It is by pushing the energy frontier, by moving into new markets and new geographies and by applying our know-how and new technology, that BP has for almost one hundred years generated its returns.
So I’d like to end where I began: on a note of pride. One of the advantages of having a long history is that you can get a sense of perspective. Every decade or so, BP has had to reinvent itself. That was the case when we lost our assets in the Middle East, when we moved into Alaska and the North Sea in the 1970s and then again in the late 1990s when we created the modern BP. We are in the midst of one of those periods now.
Today, we continue to push technological frontiers, exploiting tight gas, increasing reserves through enhanced oil recovery techniques, developing advanced seismic imaging techniques and pioneering research into the next generation of biofuels - which will based on more efficient molecules and will not be derived from food crops. These are just a few examples of the new technologies at the heart of BP.
So - the frontier is where our role is. It is by pushing the energy frontier, by moving into new markets and new geographies and by applying our know-how and new technology, that BP has for almost one hundred years generated its returns.
So I’d like to end where I began: on a note of pride. One of the advantages of having a long history is that you can get a sense of perspective. Every decade or so, BP has had to reinvent itself. That was the case when we lost our assets in the Middle East, when we moved into Alaska and the North Sea in the 1970s and then again in the late 1990s when we created the modern BP. We are in the midst of one of those periods now.
This company has a vital role to play in the next one hundred years, just as it did in the previous one hundred. There is no doubt about that. What we have to do right now is to make BP perform.
And that ladies and gentlemen is what my team and I intend to do. Thank you.
And that ladies and gentlemen is what my team and I intend to do. Thank you.
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