BP expects output growth in 2023 despite delays to African LNG project

BP expects to grow its oil and gas production this year supported by four major project start-ups despite further delays to its Greater Tortue Ahmeyim (GTA) LNG project in Mauritania and Senegal, the energy major said Aug. 1.

Reporting weaker-than-expected second-quarter earnings, BP said it now expects GTA Phase 1 to start up during the first quarter of 2024, up to six months later than previously expected. GTA is one of nine major projects that BP hopes will together boost its production by 200,000 b/d of oil equivalent by 2025. The initial phase of the offshore project is expected to deliver 2.3 million mt/year of LNG. The project will eventually produce up to 10 million mt of LNG a year.

In its main upstream segment, BP reported Q2 production of 1.37 million boe/d for the quarter, 7.5% higher than the second quarter of 2022. It reported a further 903,000 boe/d of production from its gas-focused segment, which was 2.2% lower than the same period in 2022.

During the second quarter, BP started up its Mad Dog Phase 2 project in the Gulf of Mexico and the Reliance-operated KG D6-MJ project in India, which together are expected to add around 90,000 boe/d of net production by 2025. In the second half of the year, BP expects to bring online Tangguh Phase 3 in Indonesia and Seagull in the North Sea.

BP had previously guided towards flat output growth this year but the more upbeat growth forecast still comes as part of BP's longer-term, managed oil and gas output decline as it transitions to low-carbon energy. BP expects its oil and gas production in 2030 to be around 2 million boe/d, about 25% lower than in 2019. BP sees its oil and gas production at around 2.3 million boe/d in 2025, compared with 2.25 million boe/d in 2022.

Looking to Q3, BP said it expects to report upstream production broadly flat compared with Q2. Within this, BP expects production from oil production and operations to be lower and gas and low carbon energy to be higher, including the effects of seasonal maintenance in higher margin regions offset by major project delivery.

Refining outlook

For Q2, BP's reported adjusted earnings of $2.59 billion were down from $8.45 billion in the year-prior period on lower oil and gas prices and weaker refining margins. The result was below analysts' expectations of around $3.5 billion largely on the back of weaker refining margins and lower results from oil trading in the quarter.

Despite the result, BP remained upbeat over its underlying cash flow and raised its dividend by 10%, as well as announcing a further $1.5 billion of share buybacks. BP also confirmed its capital expenditure target of $16-18 billion in 2023 including inorganic spending.

"Our underlying performance was resilient with good cash delivery during a period of significant turnaround activity and weaker margins in our refining business," CEO Bernard Looney said in a statement.

Like its energy major peers, BP saw its refining margins collapse on the year after Russia's invasion of Ukraine pushed its margin to $45.5/b in Q2, 2022. BP's refining marker margin declined less steeply than some of its peers between the first and second quarters, however, from $28.1/b to $24.9/b, reflecting its greater US footprint. For the US Midwest, BP's refining marker margin was unchanged quarter on quarter at $28.8/b.

For Q3, BP said it expects industry refining margins to remain above historical average levels, supported by low product inventories and seasonal demand in the US. BP also expects a lower level of turnaround and maintenance activity compared with Q2.

On costs, Looney said BP is continuing to drive down the company's unit production costs helped by deflation in some of its key supply markets.

"Across the world, we're seeing things like steel costs coming down some of the raw material costs coming down," Looney said in an earnings call. "Labor is an area where we do see inflation right across the world and that is unchanged and we do our best to offset that with some productivity improvements."

Looney said BP is currently seeing costs come down by around 20% on the year in its US shale unit bpx.