The energy industry is highly capital intensive, with volatile and cyclical commodity prices.
So how the industry is financed has always been fundamental to the growth of supply and the structure of the industry.
For example, finance structures and availability are playing a key role in:
The lower oil price environment has presented two challenges for the integrated Supermajors:
There aren’t many industries that can absorb the revenue impact of prices falling from $120/bbl to $40/bbl.
Over the last 3 years, the 5 Supermajor oil companies have spent $425bn
While rebalancing, the $125bn shortfall to total operating cash flow has been met in broad terms by
In BP’s case, we have now fully restored our cash flow balance - covering the full dividend and capital spending from operating cash flows in 2017 year to date.
I mentioned the US shale industry earlier, which has created a huge disruption in global oil and gas markets, with abundant resource shifting the cost curve down.
Since 2010, the onshore US industry has raised around $250bn of high-yield debt; and closer to $500bn of funding overall, including reserve based lending facilities, equity issuance and private equity.
The recent levelling off in onshore US rig activity seems to be driven in part by a greater focus on capital discipline and shareholder returns.
For BP, we have created a stand-alone Lower 48 business within the company, allowing greater autonomy and flexibility to compete. The model is analogous to private equity ownership – but within clear group boundaries for safety, values and behaviours.
Looking to the future, the energy industry faces a dual challenge:
Finance will play a key role in delivering this.
Meeting the aims of the Paris Agreement will require an unprecedented transformation of the energy system.
The scale of the change needed is enormous, with about $1 trillion p.a. investment required into low carbon and renewables compared to about $300 billion p.a. currently.
At BP, one of the ways that we are testing new technologies and business models in this area through our own venture capital business
So at BP, a clear and disciplined financial framework is central to our strategy. It has helped to steer the cash rebalancing of the overall portfolio, while ensuring adequate investment for growth across new and existing businesses.
For the industry, the energy we produce has to be affordable, reliable and accessible – whether it be shale oil or renewables. And for people to invest in a future energy resources, they need to get a return on their past investments.
I’m confident that, with the right strategies and technology investments, combined with the right mix of public policies, companies like ours can deliver sustainable growth and value to our shareholders while also supporting the transition to a lower-carbon future.