The highest Upstream production for half a decade, underlying profit a billion higher than last quarter, and a conveyor-belt of major projects set for delivery – BP’s CFO Brian Gilvary looks back at a good start to the year and why BP is a sound investment for shareholders
Oil price or operating performance: what has had the most influence on your results this quarter?
The oil price is always going to be a factor, but we are performing well. So what you are seeing in the stronger underlying earnings we’re reporting is a combination of the environment firming up – reflected in an average oil price around $4 higher this quarter than the previous one – but also the operational momentum that’s building in our businesses.
What do I mean by momentum? We have got our cash costs down by $7 billion a year compared with 2014 – and we did that a year earlier than planned. We’re being very disciplined with our capital expenditure while continuing to invest for growth where we can generate good value and good margins. We’re making sure the kit in our core business is running safely and reliably. And we’re focused very firmly on executing our new projects efficiently so that we get them online on time and on budget and ramping up as planned.
"We’re focused very firmly on executing our new projects efficiently so that we get them online on time and on budget and ramping up as planned"Brian Gilvary, BP CFO
We’ve got a lot of work to do. A lot has to happen inside the organization. But we have made a good start to the year with robust earnings and robust cash generation. Our underlying profit this quarter was $1.5 billion, which is around a billion higher than both the previous quarter and the equivalent quarter a year ago. It’s a good place to be in this environment and at this point in the year.
BP made a number of deals at the end of 2016, including in Abu Dhabi, Australia, Azerbaijan, Oman, Mauritania and Senegal. How do these fit into our results?
There has been an immediate positive impact from the renewal of the ADCO onshore concession in Abu Dhabi, which has contributed to our highest Upstream production figures for five years.
These are all long-term, strategic investments that will support our principal aim of growing sustainable free cash flow and distributions to shareholders over the long term – beyond mid-century in some cases.
We will require some additional organic capital expenditure this year, but we still expect our overall capital spend for 2017 to be comfortably within the $15 to 17 billion capital frame we set out in 2016, which is over $8 billion lower than in 2013.
BP has been talking about delivering 800,000 barrels a day of new production. Is that contributing to your results yet?
That figure relates to the major projects we have planned to start up by 2020 and we’re firmly on track to do that; in fact the projects now under construction are ahead of schedule and around 15% under budget.
Seven of these projects are planned for this year. We delivered the first one, a new gas facility in Trinidad, and three more are imminent; West Nile Delta in Egypt, Quad 204 (pictured above), west of Shetland in the UK, and the Juniper field in Trinidad (pictured below).
It was a really busy quarter with another gas discovery in Egypt, the start of an exploration drilling programme in Senegal as well of lots of activity in our Downstream segment.
We opened the first of over 1,000 fuel retail stations in Mexico – the first international oil company to do so following deregulation of the market, and added more than 30 convenience partnerships to our global retail portfolio so far this year.
That helped towards the year-on-year retail volume growth we’re seeing, and towards another good quarter for our Downstream overall with earnings of $1.7 billion before tax.
At this point in time, how does the rest of the year look for BP?
The environment is still uncertain with factors at play such as OPEC’s decision on extending its production cuts and the level of tight oil production in the US. But overall we expect the market fundamentals, driven by above average demand, to support a continued rebalancing.
In BP we’re focused on the delivery of our seven major project start-ups, and seeing production ramp up over the second half of the year, as well as continuing to focus on reliability and efficiency in all our operations. In the Downstream we’re expecting continued underlying performance improvement and strong growth in our marketing businesses. So, by the end of the year, my expectation is for stronger underlying operating cash flows. Together with our continued focus on capital discipline, this will grow our capacity to deliver sustainable and attractive returns for shareholders over time.
The last few years have seen oil and gas share prices come under intense pressure. Is BP still a sound investment?
Absolutely it is. We have a lot of history and have seen a lot of change – well over a century of change – and we are ready for more. We have a strong resource base that positions us to be increasingly competitive in any environment. We are making disciplined and well-timed choices around lower carbon. And we have a highly disciplined financial frame that is enabling us to manage and build a portfolio that is fit for the future.