Interview with Bob Dudley

'Adjusting well to new world' says BP chief

What would you say to investors about BP’s latest set of results, with their underlying profit of $1.3 billion?

I would describe the results as good, considering the circumstances. As everyone knows, oil prices have fallen deeply and dramatically over the past year. Brent oil today is trading at around $53 which is roughly half the level of a year ago. We moved quickly to respond and we are continuing to respond by controlling our capital spending and costs. Indeed, we were already simplifying and reshaping our business before prices fell. We are also now seeing some deflation in the supply chain across the industry as a whole.

As a business we are still investing for growth in a measured way. In the Upstream, we have seen two new projects start up in Angola this year and two new discoveries in Egypt. In the Downstream, we’ve seen strong performance with very efficient manufacturing and growth in marketing. At the same time, we are simplifying and economising – in fact, our cash costs were $1.7 billion lower in the first half of 2015 than the first half of 2014.

Of course we will not compromise on safety and reliability. For example, we have consciously not delayed the maintenance turnarounds that take place on facilities in the summer season in the northern hemisphere.

All these factors are reflected in the second quarter results, which are broadly in line with what was expected, other than for some write-offs because of the situation in Libya.

You touched on the oil price there; it has dropped dramatically in the past year. How long do you think it will stay this low?

When you go to oil conferences, people use shorthand - is the drop shaped like a ‘V’ or a ‘U’ or a ‘long U’ or a ‘W’, or even an ‘L’? We believe this is a ‘long U’. The price may pick up a little over the summer as people travel on vacation - making a bit of a ‘W’ and then fall back.

The industry has already deferred or re-phased around $200 billion of projects around the world in 2015, which will have a knock-on effect with costs and also, potentially, on supply in the medium term. The oil price cycle is not new. In fact, it’s the fourth cycle I’ve seen in my career. We have to plan the organization for lower prices through 2016 and get our books in order.

How significant are this month’s agreements to settle claims from the US government, Gulf Coast states and local government bodies over the Deepwater Horizon accident and spill?

They are very important. After five years of legal proceedings, we at last have a realistic outcome that provides clarity for everyone concerned. It resolves the largest liabilities remaining from the tragic accident and oil spill. The payments will total $18.7 billion over 18 years and will resolve not only the Clean Water Act proceedings, but Natural Resource Damages and other claims. We still have claims to resolve from individuals and others, but this gives all parties great clarity and allows us to better plan for the future, including further investments in the US.

What impact do the agreements have on the business?

They show up in the headline results because we have taken a charge of $9.8 billion to provide for the additional payments under the agreement. This leads to a headline loss of $6.3 billion. But this is a one-off charge to the accounts and the actual payments of $18.7 billion will be spread over 18 years. We expect the impact on our finances will be manageable and we can continue to build our business. But, we must not forget the lives that were lost or the lessons learned. This should strengthen our resolve to build an ever-safer business.

Elsewhere, the situation in Ukraine continues to be challenging. How concerned should investors be about BP’s position in Russia?

Firstly, BP will always abide by sanctions. We operate in many places around the world where there is conflict and we do so safely. The situation in Ukraine is incredibly complicated, but I do believe that commerce builds bridges between countries. Russia has been a successful place for us over the past 25 years and our relationships with Rosneft are very strong.

We are committed to our investments in Russia and will make more. We signed some new agreements this year. We formed a new joint venture with Rosneft to develop and grow a large field in eastern Siberia. It’s now producing 20,000 barrels a day and we plan to increase that to 100,000 by the end of the decade. We’re also going to explore together some other areas in the heartland of the Siberian oil basins.

At the end of May, BP signed a letter with other oil and gas companies calling for a global carbon price. Why did the business do that?

This year is important as we have the United Nations Climate Change Conference in Paris in December, at which around 200 countries will gather to try to achieve a universal agreement on climate change. Early this year, I was at another conference with the heads of Total, Statoil and Shell and the audience was asking us about our position. We realized that we needed to speak with a common voice and language. We were later joined by Eni, BG and Repsol.

The timing is right for us to have our voice heard. Gas is an important bridge to a lower-carbon future. Replacing coal consumption with gas for power generation by 1% has the same impact on emissions as increasing renewables by 11%. Today, our portfolio is 50/50 oil and gas. In a decade, we expect it will be around 60% gas.

Are you positive about BP’s future?

Very. I think we have great portfolio with a strong mixture of upstream, downstream, gas, oil, trading and renewables. We have a pipeline of almost 50 major projects between now and 2020. I think we have positioned ourselves for rough waters, quickly. We will be fast and nimble in making decisions and, if the right opportunities come up, we will take them.

We are adjusting well to the new world we work in and, as time goes by, we will be able to be even more specific about our strategy and objectives for the medium to longer term. Everything we are doing right now is getting ourselves fit for the future – and that makes me very positive about BP.