In 2020 bp retired its time-worn classification of its activities into “upstream” and “downstream”. In its place it now has four business groups:
The following table gives some impression of the relative weights in terms of sales and replacement cost earnings. There was a dramatic fall in overall sales in 2020 when fossil fuel prices were low; then a strong bounce back in sales of oil products and gas in 2021.
Most of bp’s oil is refined in-house resulting in much larger external oil product sales than crude oil sales. Turnover of oil products and profits from oil crude and products varies tremendously from year to year depending on commodity prices.
The group is in the middle of a major divestment programme which means between 2020 and 2025 it’ll sell off around $25bn of assets (bp’s MCap is $100bn), mostly oil and gas fields and facilities. Already $15.5bn has been raised with another $2 - $3bn expected in 2022.
However, this does not mean that oil and gas are being abandoned. About $5bn per year is spent on oil capex and another $3 - $4bn on gas capex; and $1 - $1.5bn on refining and trading capex.
So oil and gas still accounts for the bulk of the annual $14 - $16bn Group capex. That makes sense given the expert projections for global oil demand being stable for many years yet.
The world consumes around 100m barrels per day (bp contributes about 2.5m b/d), and the industry needs to invest to offset the normal 5m-6m b/d normal rate of field decline.
While oil and gas exploration and development is less than it has been in the past it continues, but with a greater emphasis on higher returns. Bernard Looney, CEO commented on his continued commitment to oil and gas in December 2021,
“We brought on seven [O&G] projects this year, and will bring on projects next year, and the year after that. We will start up new oil fields, but only ones that have the best carbon intensity, only ones that have the best economics, the shortest paybacks, the highest returns…oil and gas will continue to be needed…and we will use those cash flows to help us to make the transition”.
Despite this commitment, Looney says that net-net production of O&G will go down by 40% through this decade; 20% by 2025, 40% by 2030.
The 2020 Annual Report described the shift of resources within the company:
“As part of our net zero ambition, we aim to increase the proportion of investment we make into our non-oil and gas businesses. We plan to increase investment in low carbon from around $750 million in 2020 to $3-4 billion by 2025 and to around $5 billion a year in 2030 [total group capex is expected to be $14 - $16bn per annum through to 2025]. The aim is to be net zero across its entire operations on an absolute basis by 2050 or sooner…to be net zero on an absolute basis across the carbon in its upstream oil and gas production by 2050 or sooner… disciplined investment to support growing returns and to focus on highest-quality barrels…high-grading of the portfolio; plans and expectations that bp will not undertake exploration activity in new countries…Overall, bp transition and low carbon capital expenditure in 2020 was around 20% of the capital mix, and by 2030 we expect it to be as much as 50% of our capital expenditure”
It is thought that the breakeven oil price for bp is $40 per barrel. With oil prices more than double that the company generates an enormous amount of cash.
Tomorrow we'll look at the gas and wind energy parts of bp.
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