BP plc · LSE:BP.
BP — Investor Day (December 2014)
48 slides from BP's investor day presentation, December 2014
Slide 1: Upstream Investor Day
Upstream Investor Day December 2014 Khazzan, Oman
Slide 2: Welcome to the 2014 BP Upstream investor day
Good morning and thank you for joining us today. Welcome to the 2014 BP Upstream investor day. We are pleased to have you here with us. 2
Slide 3: Cautionary statement
Before I begin I need to draw your attention to our cautionary statement. During today’s presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors that we note on this slide and in our
Slide 4: Safety briefing and day overview
You will find evacuation guidelines within the safety briefing materials which are included with the hand-outs on your seat. We’re not planning to test the alarm system today, so if you hear it, please proceed as advised by these instructions. Today will be focused on our Upstream business and there
Slide 5: Upstream leadership presenters
Richard Herbert, COO, Exploration; Andy Hopwood, COO, Strategy & Regions; Bernard Looney, COO, Production; Steve Riney, CFO for the Upstream; Neil Shaw, COO, Projects; and Dave Lawler, new CEO of our Lower 48 business. 4
Slide 6: Agenda for this session
So let me outline the agenda for this session. First I will start with an overview of the macro environment which is on everyone’s minds and I will try to put the recent developments in oil price into context for what we are going to cover today. Second, I’ll outline our Upstream strategy and the ch
Slide 7: Key questions investors ask
– What is our base decline rate? – Does BP have the right balance of deepwater, gas and unconventionals? – Is our project pipeline strong enough beyond 2018? – Can we deliver cost and capital efficiency improvements? – Can we continue to progress and replace reserves? – Can we continue to grow under
Slide 8: The oil price environment
So starting with the environment. Since we last met in March, oil prices have fallen sharply while gas prices continue to reflect local supply and demand dynamics. Brent has averaged around $80 per barrel in the fourth quarter to date and currently sits below $70 per barrel. Market fundamentals are
Slide 9: Price recovery history and cost alignment
As the chart on the left shows, it has historically taken up to 2 years for prices to undergo a recovery following periods of steep price declines. In all the instances shown - with the exception of the period between 1985 and 1986 - the recovery was triggered by one or more OPEC production cuts. At
Slide 10: Managing through the cycle
BP has a good track record of managing through these cycles and we believe we have enough flexibility to withstand a period of low oil prices. I would highlight a few things. First, at the highest level, BP is an integrated business. Lower prices should benefit our Downstream business and provide so
Slide 11: Restructuring and cost streamlining
streamlining activity that we began some 18 months ago in response to resizing the group. As you have seen from today’s press announcement, as part of the group’s ongoing programme to simplify across Upstream, Downstream and corporate functions, we expect the group to incur about $1 billion of non-o
Slide 12: Group proposition: value over volume
In March of this year we re-iterated our group proposition to you based on a $100 per barrel real oil price assumption out to 2018. We clearly expect to see an impact from lower oil prices over this timeframe. And as just illustrated, if these levels are sustained, we also expect industry margin str
Slide 13: Outlook based on $100 oil
beyond. Our strategy is long range which we believe is the only way to manage this business. Notwithstanding near term oil price impacts, the outlook we will show you is based on real $100 per barrel oil and $5 per million BTU Henry Hub prices. This allows the most effective like-for-like comparison
Slide 14: Recent scorecard and 10-point plan
Let’s take a look at our recent scorecard. We are proud of the track record of delivery we are building. The group is on track to deliver the $30-31 billion of operating cash flow planned for 2014. This will mark the delivery of our 10-point plan. Relative to 2013, it reflects enhanced performance i
Slide 15: Upstream strategy
Looking forward our Upstream strategy remains the same. First and foremost improving safety and making operations more reliable, which in itself delivers value We focus on value over volume - we have a more focused footprint and will continue our portfolio management activities. We aim to deliver va
Slide 16: Upstream portfolio balance
Before we turn to our growth plans, I want to use a couple of slides to remind you about our existing portfolio. Our Upstream portfolio is well balanced and plays to our strengths. A snapshot of our expected operating cash flow in 2020 reflects a balance in our investment biases of giant fields, dee
Slide 17: Diversified global portfolio
We also have a well diversified portfolio. As the map on the slide shows, we have a number of important incumbent positions, with production coming from 14 different provinces around the world. This provides diversity of exposure to fiscal and political risk and opportunities. It also allows a balan
Slide 18: Operating cash flow growth drivers
Turning now to our growth story. Growth in operating cash flow has three primary drivers: volume growth, margin growth and cost efficiency. First we see underlying volume growth through a combination of base management and project growth – The base business is the ongoing operation of our existing a
Slide 19: Cost efficiency focus
based on our planning assumptions. The third driver is a focus on cost efficiency. We are in action to embed a series of interventions to align our cost base more closely with the extent of our current and future operations, and therefore to become more efficient and competitive. 14
Slide 20: Disciplined investment approach
We have a very disciplined investment approach in the Upstream that aims to support growing free cash flow for the group. Throughout this decade we will maintain a disciplined investment approach and a focus on value over volume. We currently have more opportunities than our capital frame enables us
Slide 21: Near-term investment priorities
In the Upstream for the near-term: – We will continue to invest in our existing base and our projects under construction; – We will tighten levels of exploration and other discretionary spend; and – We will work deflationary momentum on projects and other activities that are yet to be contracted. Ov
Slide 22: Safer and more reliable operations
We are focused on driving the systematic delivery of safer and more reliable operations, and this focus is delivering results. Our underlying business is becoming safer and more reliable. Tier 1 Process Safety Events (PSEs) represent the most serious events in the operation of our wells and plants.
Slide 23: Reservoir management and EOR
In addition to ensuring safe, reliable and efficient operations, reservoir management and wells execution are two further lenses we use to manage our base assets. Good reservoir management ensures optimisation of both recovery and value. Gas and water flooding are methods that we use to improve rese
Slide 24: Wells execution and new well delivery
Our efforts in this area have increased production from new well delivery and well work and this figure is now the highest since 2009. Finally non- productive time is also trending down, helping to accelerate delivery of production. Looking forward, we have a number of high-return new well delivery
Slide 25: Base asset strategy summary
So to summarise the strategy for our base assets: – Our base assets are becoming safer and more reliable – We are improving plant efficiency of our major assets – an 8% improvement since 2010 – We focus on maximising recovery and value from our reservoirs – In 2014, we achieved the highest productio
Slide 26: Major project delivery to 2020
So let me now turn your attention to major project delivery, obviously an important element of our future growth. By 2020, we anticipate that our current suite of major projects has the potential to bring online over 900 thousand barrels of oil equivalent per day of incremental new production net to
Slide 27: Project start-ups and production sharing agreements
those projects that best fit our portfolio. Those that are not progressed in this timeframe may continue to be optimised for later development or may be monetised through divestment if they provide a better fit for someone else’s portfolio. Around half of the combined expected production in 2020 fro
Slide 28: Project pipeline beyond 2020
So, that’s the next few years but our opportunity set extends well beyond 2020. To highlight the diversity of projects we have in the pipeline, you will see 60 projects on this slide, including those where we have line of sight to start-up into the next decade. Around 30% of our projects lie in deep
Slide 29: Higher operating cash margins from new projects
Looking further forward, we expect our 2015 to 2020 project start-ups to continue to contribute to enhanced segment operating cash margins. This project set, which includes our next suite of large gas projects is anticipated to return average margins over 35% higher than the current segment average,
Slide 30: Major projects summary
So to summarise our major projects story: New projects out to 2020 expected to deliver: – Over 2 million barrels of oil equivalent per day of new gross production; – That’s over 900 thousand barrels per day of BP net production; at – Higher average operating cash margins. 50% of 2020 new project pro
Slide 31: Exploration and resource progression
The growth profile established by new major projects can be further sustained in the long- term through exploration, continued progression of resources in BP’s portfolio and growth in giant field reserves. We have reloaded our exploration pipeline over recent years through significant access to new
Slide 32: Future exploration and appraisal
So what does this mean for the future? Our exploration and appraisal programmes today give us line of sight to long-term production growth. Our investment will reflect a balance between near-field, high value exploration around our existing assets, further exploration and appraisal in regions that w
Slide 33: Resources and exploration key messages
So these are our key messages on resources and exploration: – We have reloaded our exploration pipeline; – We have had a successful 2013 and 2014 exploration programme ; – We have grown our resource base by 4% despite divestments between 2011 and 2014; – Our existing portfolio underpins long-term un
Slide 34: Cost discipline actions
Let me now address the actions we are taking in the area of cost discipline. Following the transition to our functional model we started - over 18 months ago - to look closely at inefficiencies that were developing in our Upstream organisation. We also sought to counter the cost inflation that was d
Slide 35: Cost competitive position
opportunities to reduce costs, which we believe could well be amplified within a deflationary environment. A number of our competitors have given you indications of this. We expect to at least maintain the competitive position you see reflected on this chart without necessarily seeking to be the low
Slide 36: Gas strategy
Next, I’d like to give you a high level overview of our gas position and strategy. This is an area in which we have a number of exciting growth opportunities. But let me first tell you why I believe gas to be an area where we want to grow. First, gas is the cleanest fossil fuel. Second, the demand g
Slide 37: Gas share of resources and production
commercial, financial and technical capability, allows us to deliver competitive returns. Today gas contributes to around half of resources and production in our portfolio and this is expected to grow over the next decade. The long plateau of most of these investments is altering the shape of Upstre
Slide 38: Gas value chains and operating cash growth
So how does this strategy show up in the bottom line? Our gas portfolio has the potential to double operating cash and improve returns over the next decade through volume and margin growth. As you can see from this slide, we have eight material gas value chains in production or development with the
Slide 39: Lower 48 business separation
Now turning to a part of our portfolio we are getting increasingly excited about. In March, we announced our plan to separate our US Lower 48 oil and gas business into a separate unit reporting to me. The rationale was that a new operating model was needed to improve performance in this business. We
Slide 40: Lower 48 vision and asset base
Thank you Lamar. It’s a pleasure to be here today and share with you my excitement at joining BP and the opportunity to lead a great piece of the business. Three key factors supported my decision to join BP. First and foremost, Bob and Lamar’s commitment to build the Lower 48 into an exceptional bus
Slide 41: Lower 48 performance and safety
some 25%. We have also linked compensation to improved safety and financial performance, exclusive to the Lower 48 business. To improve efficiency, we’re moving to work standards appropriate for the onshore operating environment, and more aligned with those used by our competitors. Let me be clear,
Slide 42: Eagle Ford position
Now I’d like to highlight just three of our assets to give you a sense of the material opportunity we have. One of these is our Eagle Ford position located in South Texas. Not many in the industry have a sense for just how sizable, or how robust the economics really are in this position. We have 1.7
Slide 43: San Juan basin
The second asset I’d like to highlight is the San Juan basin. Approximately 75% of our production comes from what is considered to be the best coal bed methane reservoir in the world. San Juan’s coal rank – a measure of coal thermal maturity - is ideal for both the generation and storage of methane.
Slide 44: Mid-continent position
The third asset we wanted to share with you today is our position in the mid-continent area, which includes the Anadarko, Arkoma and Fayetteville project areas. We have a massive 1.2 million net acre position - which was acquired early on - with a high net interest that is currently producing 85 tho
Slide 45: Key takeaways
David Lawler hands back to Lamar: Thank you Dave. To sum up the key points we would like you to take with you into the break-outs: First, the current environment is challenging but we believe we are well positioned to respond whilst also managing our business for the long-term. Our balance sheet is
Slide 46: Closing remarks on growth and execution
quality gas options which are rapidly becoming a greater source of distinction in our portfolio. And the growth possibilities don’t end there. We have a quality pipeline of opportunities capable of extending underlying growth well beyond 2020. So I am excited about this business. I believe we have a
Slide 47: Breakout sessions
We’ll now move to a series of breakout presentations, led by members of the upstream functional leadership teams. We have four break-out sessions today, which you will attend in rotation either side of the lunch break. We then reconvene mid-afternoon for a wrap up and Q&A session. On the front of yo
Slide 48: Sunrise, Canada
Sunrise, Canada 35