International oil giant BP (ticker: BP) reported that its Q2 2017 production—at 2.431 MMBOEPD was 10% higher than Q2, 2016. The company earned $144 million during the second quarter, bringing its profit to $1.593 billion during the first half of 2017. This compares to a loss of approximately $2 billion during the first half of 2016.
BP’s capital expenditure was $4.3 billion during Q2, totaling $7.9 billion for the first half of the year. The company’s net debt increased from $30.9 billion in 2016 to $39.8 billion in 2017.
By the end of 2020, BP expects to add 800,000 BOEPD of new production through its major projects. The company produced 2.431 MMBOEPD during Q2 due to ramp ups in many of its projects. The company’s production in the first half of 2017 averaged 2.410 MMBOEPD.
New pricing order
Robert Dudley, group chief executive of BP, noted that the company was “resetting [its] cost base over the last few years” and that BP anticipates that, by year end, the “unit production cost to be 40% lower than in 2013.”
Dudley mentioned that “around 75% of these cost reductions are from efficiency,” indicating that such efficiency gains are also sustainable for the long term, and are not simply the result of abrupt cost cutting.
The company’s focus will be to “digitize the business at pace,” throughout all of the company’s facets, from modeling to plant operation.
Q2, 2017 BP Conference Call Q&A
Q: Can you give us your thoughts on what the oil price will do further into the future?
Robert Dudley, group executive officer: When you look at the supply and demand and the projections out there, I think Brian used the term $45 to $55 for the next year. In our thinking, that’s pretty good fairway for us going forward, thinking about $50 oil for the next five years is the numbers we’re going to use right now and keep the discipline about it.
That’ll bring down the cost structures even further in the industry. The U.S. shales are a swing producer. There’s always geopolitical events that could create spikes in the other direction. But in terms of our thinking, getting BP to work, getting our breakevens well into the $30s and thinking that it’s a rough $50 over the next five years is right now our thinking.
Q: Your major projects add to approximately 800,000 barrels a day of oil equivalent production of that, the oil projects add up to about 85,000 barrels a day of that total—10% of the total and the other 90% is gas. Now I know the mix is shifting and that the strategy is sort of moving, is the strategic intent of BP to have the oil gas mix shift so much towards gas over the next couple of years?
BP: There is a shift in the portfolio to gas, it’s not a 90% shift. We do have the oil projects in there. If you look at the Thunder Horse expansion projects, you’ve got the Mad Dog project, which is a significant oil project coming down the track. Clair Ridge next year in the UK, Quad 204 this past year, and then with a fair number of these gas projects, there’s a lot of liquids and condensate with it. So, I think the number isn’t 90%.
These projects, we look at as advantaged gas projects. They’re not like Lower 48 type projects. They tend to be in markets that are short gas where we have contractual gas pricing so that the economics are clear. The Egypt projects fit into that, the Oman projects fit into that. So there’s gas and there’s gas, and so these are quite selective gas projects for us.
And Mauritania and Senegal will have a significant amount of gas. I’d also add that there’s a lot of oil prospectivity there as well, which wouldn’t be on the charts. But it is. You’ve seen our strategic shift. Low cost oil, advantaged oil will still remain a very important part of the portfolio but a shift higher to gas.
