BP’s response to
lower oil prices
bp.com/investors
The industry is going into a very challenging
phase as we reset to a lower price environment
but our business model is a very focused one
and we are in action to respond.
Bob Dudley
Group Chief Executive
February 2015
For more information
bp.com/investors
Please be aware of the cautionary statement on the back
page of this document. For further information, please
see the full transcript of BP’s investor presentation from
the 3rd February 2015 and 28th April 2015.
Resetting for a period of lower oil prices
Oil price volatility is inherent in our industry. At BP,
we are actively responding to the current environment.
Brent Crude Oil
(USD/barrel)
160
140
120
100
80
60
40
20
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Thomson Reuters Datastream, 9 September 2015.
After a sustained period of oil prices over $100 per barrel, the price of Brent
crude oil has fallen sharply since the third quarter of 2014. BP is in action to
rebase our business for a lower price environment. We have a focused portfolio
of quality assets, a clear set of near term priorities and we are in action to reset
our capital and cost base.
BP’s response to lower oil prices
1
A focused portfolio
Today’s environment is a good reminder of the logic of being an
integrated business with a focused portfolio of high quality assets.
A focused portfolio
Group divestments
since 2010 (1)
73%
61%
50%
44%
Operated
installations
Operated
wells
= Retained
Operated
pipelines
Refining
capacity
= Divested
(1) At end 2014
Contribution to 2014
Upstream operating cash flow
Gas value chains
Deepwater oil
Other
Azerbaijan
Angola
North Sea
Giant oil fields
2
Gulf of Mexico
BP’s response to lower oil prices
BP has divested over $45 billion of assets since 2010 with a core purpose of
creating a stronger, simpler and more focused business. The choices we have
made around our portfolio have provided us with a more focused footprint, a less
complex business and a stronger overall set of assets which play to our
strengths. All of this leaves BP positioned to focus resources for the greater
discipline demanded by lower oil prices.
In the Upstream, our portfolio reflects a balance of investment in giant fields,
deepwater and gas value chains (which tend to produce smoother longer life
cash delivery) with strong incumbent positions in our four key geographic regions
of Angola, the Gulf of Mexico, Azerbaijan and the North Sea. The portfolio is
sufficiently diverse to balance exposure to fiscal and geo-political risk but
concentrated enough to allow us to focus on our strengths.
Our repositioned Downstream business, with our newly upgraded Whiting
refinery, is not only an important cash generator for the group but still has
potential to grow returns as we focus this business on growth markets and
efficiency.
Clear near term priorities
Looking ahead, our focus throughout
will be on growing value for shareholders.
Clear near term priorities
Delivery
Consolidating the underlying
momentum in our business
through continued safe, reliable
and efficient execution
Right now, the industry is in a reset phase – a period of intense change, the
outcomes of which will be defined by oil and gas prices, the pace of deflation,
the realisation of efficiencies across the sector and possible inorganic activity.
At BP we will be focusing on a clear set of priorities.
Divestments
Completing the $10 billion
programme of divestments
Discipline
Resetting the capital budget and
right-sizing the cost base to
match our footprint
Dividend
Firmly established as the first
priority within our financial
framework
Delivery
Consolidating the underlying momentum in our businesses through continued
safe, reliable and efficient execution.
Divestments
Completing our current $10 billion divestment programme.
Discipline has two parts:
Firstly, resetting the capital budget to ensure every dollar of capital spend
delivers value for shareholders, paring back activity as necessary and taking
advantage of deflation; and
Secondly, right-sizing the cost base to match our footprint and withstand a
sustained period of lower oil prices.
Dividend
And most importantly, the dividend, which makes us keenly aware of the need
to rebalance our sources and uses of cash for a lower oil price environment.
BP’s response to lower oil prices
3
Financial framework
We are actively pursuing a disciplined
reset of our capital and cost base.
Balance sheet
Capital Expenditure(1)
($ billion)
15
At the end of the second quarter of 2015 our balance
sheet reflected gearing of 18.8% and we are working
steadily towards divesting a further $10 billion of assets.
This gives us significant flexibility as we continue to
rebalance our financial framework to the current
environment.
10
Restoring balanced cash flows
5
Our first priority within the financial framework is the
dividend. Our objective over time is to reflect a position
where underlying operating cash flow covers capital
expenditure and dividends. We will be actively working to
re-establish this balance in our financial framework over
the medium term.
25
20
2010
2011
2012
2013
2014
2015
(1) 2015 estimated
Capital reset
We drive capital discipline by constraining the total level of
capital spend in any one year, taking account of the
opportunities available and the flexibility of our balance
sheet. This is consistent with our ongoing focus on both
value over volume and active portfolio management. In
2015, we have reset our capital budget to below $20
billion, well below our previous guidance. In the Upstream
the reduction is expected to come from paring back
exploration and access spend, shelving a number of
marginal projects, prioritising activity in our base
operations and the reduced spending we anticipate in
projects operated by others. This does not rely on supply
chain deflation in the near term. Depending on where
prices settle we would expect deflation to become
evident in our capital frame as we move into 2016 and
beyond. These interventions in the Upstream will be
further supported by not advancing selected projects in
the Downstream and our other businesses. Looking
further out, our overall capital budget will be the subject
of ongoing review as we re-work our medium-term plans.
4
BP’s response to lower oil prices
We are very clear on the actions we need to take to
complete our current $10 billion divestment programme,
reset our capital expenditure to below $20 billion for 2015
and resize our cost base. These interventions are
designed to support our dividend in 2015 in the current
price environment, without compromising investment for
the future.
Over the course of 2015 we expect to start to see some
sector supply chain deflation as we also reset our own
controllable costs to be sustainable to a lower price
environment.
Group cash costs(1)
Simplification and efficiency
Upstream
Active supply
chain management
Making choices
in our portfolio
2010
2011
2012
2013
2014
(1) Cash costs are the principal operating and overhead costs that management considers to
be most directly under their control; see bp.com for further information
Right-sizing the cost base
BP invested significantly in certain areas of functional
capability following the Deepwater Horizon incident,
which was also a period of strong inflation. At the same
time we started divesting non-core assets. This triggered
a need to streamline our supporting functions and
structures so they are the right size to support our new
portfolio, without sacrificing safety and risk management
in any way.
Aligning business
support costs with
size of operations
Continued
improvement in
activity planning
and execution
Downstream
BP started on this journey some time ago and the results
of these efforts are now becoming evident in our total
cash cost base. In 2014 we saw a reduction in total group
cash costs of over $1 billion relative to 2013. We expect
ongoing activity to deliver further efficiencies in 2015 and
to be sustainable over the long term.
~$1.6bn of
Downstream
efficiency savings
by 2018 vs. 2014
Corporate
Given the uncertainty of the outlook, we are now
intensifying our efforts and actively seeking to take
advantage of deflation, looking closely at all forms of
activity across the group.
Sixty corporate
simplification
initiatives
underway
BP’s response to lower oil prices
5
Forward-looking statements - cautionary statement
This document contains forward-looking statements – that is, statements related to future, not past events – with respect to the financial condition,
results of operations and business of BP and certain of the expectations, intentions, plans and objectives of BP with respect to these items, in
particular statements regarding future global energy trends; BP’s plans to pare back activity, re-phase spend and take advantage of expected deflation
and rework the capital budget; expectations regarding the level of 2015 capital expenditure; plans regarding completion of the divestment of $10
billion in 2015; expectations regarding BP’s future competitive position and the future industry business environment; expectations and plans
regarding the right-sizing of group’s cost base and the benefits accruing therefrom and the delivery of efficiencies in 2015; BP’s plans and
expectations regarding the current industry reset phase through 2015 and the medium term, including reducing spending and prioritising activities in
the Upstream and Downstream businesses; expectations regarding future growth in returns from Whiting; expectations and plans regarding BP’s
continued focus on capital expenditure and cost discipline; and expectations regarding dividend payments in 2015 and surplus cash biased to future
distributions.
By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may
occur in the future and are outside the control of BP. Actual results may differ from those expressed in such statements, depending on a variety of
factors including changes in public expectations and other changes to business conditions; the timing, quantum and nature of divestments; the
receipt of relevant third-party and/or regulatory approvals; future levels of industry product supply; demand and pricing; OPEC quota restrictions; PSA
effects; operational problems; regulatory or legal actions; economic and financial conditions generally or in various countries and regions; political
stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; exchange rate fluctuations; development
and use of new technology; the success or otherwise of partnering; the actions of competitors, trading partners and others; natural disasters and
adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism, cyber-attacks or
sabotage; and other factors discussed under “Risk factors” in our Annual Report and Form 20-F 2014.
Reconciliations to GAAP – This presentation also contains financial information which is not presented in accordance with generally accepted
accounting principles (GAAP). A quantitative reconciliation of this information to the most directly comparable financial measure calculated and
presented in accordance with GAAP can be found on our website at www.bp.com.
Tables and projections in this presentation are BP projections unless otherwise stated.
September 2015
Contact details
You can email the Investor
Relations team at ir@bp.com
You can also telephone
+ 44 (0) 207496 4000
or write to:
Investor Relations
BP p.l.c.
1 St James’s Square,
London SW1Y 4PD, UK.