BP to spend up to $16 bil more by 2030 in renewed focus on oil, gas

BP plans to spend up to $16 billion more developing its oil, gas and renewable energy projects over the coming decade, the company said Feb. 7, in a major backtrack on previous pledges to slash its upstream production by 2030.

The energy major plans to invest up to $8 billion into oil and gas by 2030, targeting short-cycle opportunities with lower operational emissions, it said in a strategy update. A further $8 billion could be spent on BP's so-called "transition growth engines" which including bioenergy, hydrogen, renewables, EV charging and convenience stores.

As a result, BP said it now expects its oil and gas production in 2030 to be around 2 million b/d of oil equivalent, about 25% lower than in 2019, compared to previous guidance of a 40% reduction. BP said it sees its oil and gas production at around 2.3 million boe/d in 2025, compared to 2.25 million boe/d in 2022.

"It's clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what's known as the energy trilemma. To tackle that, action is needed to accelerate the transition. And -- at the same time -- action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it's needed today," CEO Bernard Looney said in a statement.

The changes mean BP's target capital expenditure range has been raised to $14 billion-$18 billion a year out to 2030, from a target range of $14 billion-$16 billion.

"All investments will remain subject to disciplined application of BP's balanced investment and returns criteria," BP said.

BP also said it now aims for a fall of 20%-30% in emissions from carbon in its oil and gas production in 2030 compared to a 2019 baseline, lower than the previous aim of 35%-40%. As a company, however, BP stuck with its existing net-zero commitments to 2050.

Around half of the additional green spending will be aimed at established businesses in bioenergy, and convenience stores and EV charging, with the other half in hydrogen, and renewables and power, BP said, confirming that it still expects green transition spending to match its oil and gas sector capex by 2030. It confirmed previous guidance of producing 100,000 b/d from its biofuel plants by 2030. BP said it expects to achieve returns of more than 15% from bioenergy, and from convenience and EV charging combined, and "double-digit" returns from hydrogen. It expects 6-8% returns in renewables.

Strategy rethink

The move marks a major rethink by Europe's number two energy major, two and a half years after it unveiled a radical new strategy to shrink upstream production by at least 1 million b/d of oil equivalent, or 40%, by 2030 in the wake of the COVID-19 pandemic.

At the time, BP set itself a target of selling off around 600,000 boe/d of low-margin oil and gas production over the next five years as part of its ambitious transformation from an integrated hydrocarbons producer to a global energy major. BP's upstream production -- excluding its share in Russia's Rosneft -- was to fall from 2.6 million b/d of oil equivalent in 2019 to around 2 million boe/d by 2025.

But Western sanctions on Russia over its war in Ukraine have raised concerns over the security of energy supplies, triggering a near-term focus on alternative oil and gas supplies to Europe.

"We need continuing near-term investment into today's energy system -- which depends on oil and gas -- to meet today's demands and to make sure the transition is an orderly one," Looney said. "We will prioritize projects where we can deliver quickly, at low cost, using our existing infrastructure, allowing us to minimize additional emissions and maximize both value and our contribution to energy security and affordability."

BP said it now expects to bring on stream around 200,000 boe/d of new production from nine high-margin major project start-ups by end-2025, with new developments further out helped by lower operating costs and Improved upstream productivity. BP is still aiming to sell about 200,000 boe/d of its lower-margin upstream operations to 2030 as part of portfolio high-grading.

"We have a hopper of opportunities of 18 billion barrels and that's what underpins our plan to 2030," BP's upstream head Gorden Birrell told analysts in a presentation. "We have a rich opportunity set within that 18 billion barrels so we can make choices that will continue to offset the declines..so I'm very confident that the resources are in the ground."

The new upstream production targets exclude BP's 19.75% stake in Russia's state-run Rosneft which the company is looking to sell and no longer reports production from. With the removal of the Russian production, BP said its full-year average reported production in 2022 was around 40% lower than the total production BP reported in 2019 at 2.25 million boe/d.

Price assumptions

Part of BP's increased capex guidance is supported by higher medium-term oil and gas price assumptions. BP raised its Brent oil assumption to 2030 by $10/b to $70/b to reflect "near-term supply constraints." It kept its long-term Brent assumption of $45/b unchanged, reflecting expectations that as the energy system decarbonizes, falling oil demand will cause oil prices to decline.

BP's price assumptions for US benchmark Henry Hub gas up to 2035 and up to 2050 were increased to $4/MMBtu and $3.50/MMBtu respectively to reflect the increased demand for US gas production to offset reducing Russian gas flows.

Downstream, BP raised its refining marker margin assumption by around $2/b to $14/b out to 2030, but said it sees margins falling to around $8/b by 2050.

"The continuing impact of the war in Ukraine and the resulting energy shortages, together with changes in the structure of energy markets post-COVID, means we now expect oil and gas prices and refining margins to remain higher throughout much of this decade," chief financial officer Murray Auchincloss said.

Q4 earnings

Reporting its Q4 earnings, BP said it expects its reported and underlying upstream production to be broadly flat in 2023 compared with 2022, with oil production slightly higher and production from gas and low-carbon energy lower.

BP said it expects the startup of Mad Dog phase 2 in the US Gulf in the second quarter of 2023 and first gas from the Tangguh expansion in Indonesia and Greater Tortue  Ahmeyim (GTA) phase 1 project offshore West Africa in the fourth quarter of 2023.

BP's reported production from its oil upstream unit for the quarter was 1.31 million boe/d, 3.6% lower than the fourth quarter of 2021. In its gas-focused upstream unit, BP's production for the quarter was 956,000 boe/d, 1.8% lower than the same period in 2021.

BP said it expects oil prices to remain supported in the first quarter of 2023 by recovering Chinese demand, ongoing uncertainty around the level of Russian exports and low inventory levels.

Downstream, BP said its global refining margins decreased modestly to average $32.20/b during the fourth quarter, adding it expects industry margins to "remain elevated" in the first quarter due to sanctioning of Russian crude and oil products.

For the fourth quarter of 2022, BP reported an underlying adjusted profit of $4.8 billion, up from $4.06 billion in the year-ago period, on higher energy prices. For the full year, BP reported a record profit of $27.6 billion, exceeding the previous high of $26 billion in 2008.