At a presentation for investors on Dec. 10, BP presented its strategy and plans for its upstream oil and gas business, which include spending $1 billion in restructuring charges through 2015, along with hundreds of jobs cuts and structural changes. The day-long presentation was led by BP’s Upstream chief executive Lamar McKay.
BP says that it will be cutting mid-level manager positions in the company's production, refining, and corporate sectors located mainly in the US and the UK. The job cuts follow declining oil prices and the rising costs that the company is still incurring from the 2010 Deepwater Horizon disaster in the Gulf of Mexico. BP has made $43 billion in global divestments in the last few years.
Group Chief Executive Bob Dudley said, “We have already been working very hard over these past 18 months or so to right-size our organization as a result of completing more than $43 billion of divestments. We are clearly a more focused business now and, without diverting our attention from safety and reliability, our goal is to make BP even stronger and more competitive. The simplification work we have already done is serving us well as we face the tougher external environment. We continue to seek opportunities to eliminate duplication and stop unnecessary activity that is not fully aligned with the group’s strategy.”
As an integrated group, not all BP’s businesses are equally exposed to the oil price. About one third of its upstream projects are operated under production sharing contracts, and it is also investing in gas projects that are typically less sensitive to oil price movements. Importantly, while BP approves projects at $80 a barrel, it also already tests each at $60 a barrel to understand the resilience of the portfolio at a range of prices, and it will continue to consider lower price sets as appropriate.
Across the Group, BP has said it will be looking to pare or re-phase capital expenditure without compromising safety or future growth. In October, BP told investors this could result in reductions of $1 billion to $2 billion in capital expenditure across the Group in 2015 against guidance of $24 billion to $26 billion laid out in March. This will be reviewed further as part of the 2015 plan, recognizing the current outlook for oil prices.
With falling oil prices, BP's increased focus on streamlining activity is further helping the company align its cost base with its smaller footprint and reduced activity levels.
Between now and 2020, BP's Upstream team will start up a suite of new projects that are expected to be capable of adding over 900,000 barrels of oil equivalent a day of net incremental production to BP’s portfolio by 2020. BP will also be progressing opportunities expected to continue to drive underlying growth into the next decade as it builds out its conventional and deepwater oil positions and a distinctive and material portfolio of gas options.
“Although the current environment is challenging, BP is well-positioned to respond and manage our Upstream business for the long term,” McKay said. “We expect to see growth from our conventional and deepwater assets and an increasing contribution from gas. And we also have a quality pipeline of opportunities that we believe are capable of extending underlying growth well beyond 2020.”