BP: Adapting to the times - Where were they then? (Part 1)

The OGInsights team recently met with the BP corporate strategy department to discuss how the strategic direction of the company has changed since the collapse in oil prices. In this two part entry, we look at where BP were a year ago and where they are now in terms of strategic thinking.

Part 1: Where were they then?
At the beginning of 2015, BP already began planning for a "lower for longer" scenario, however growth was still very much top of mind. Reserve replacement was a key challenge to the company's longer term existence and the USD2 billion annual exploration programme at the time, assuming a USD5/boe finding cost, would only yield 400mmboe of new reserves compared to BP's annual production of c.750mmboe. BP wanted to maintain a quality exploration programme, but it was increasingly recognised that M&A would be needed to meet the necessary level of reserve replacement.

In terms of M&A, BP were looking for "scale and materiality" and needed to be in a position where it would be relevant to a country. They shared a few key themes of their strategic thinking back in 2015, with a focus on their African portfolio:

1. Existing portfolio sufficient

• They were satisfied with their positions in Africa (Angola, Egypt, Algeria) and did not see other opportunities in the region of sufficient scale to justify a new country entry.

2. Brazil over West Africa

• Although the West African Transform Margin was an attractive play, BP's position in the conjugate Brazil offshore was seen as an easier play on the geology without the need to deal with multiple countries/governments along the West African coast.

3. Angolan monetisation

• Angolan geology was clearly a coveted part of the African portfolio, and in 2015, BP were reaching a critical phase of exploration testing with a series of wells in the year (which were technical successes).
• However, the Angolan position was littered with a lot of stranded discoveries and could not be developed on the current cost base.
• Options to monetisation being considered were sharing of costs, or acquiring to build critical mass there.
• Acquiring Cobalt was clearly something being considered.

4. Rebalancing to the onshore

• The company's portfolio was viewed as over exposed to deepwater and not the balance BP would like to be in a low oil price environment.
• They were glad to have missed out on East African gas story which has been plagued by delays and upcoming expensive developments.
• Tullow and Africa Oil continue to be monitored in the background, as an opportunity to rebalance the onshore portfolio, and NewAge's Congo position and Savannah Petroleum in Niger were added to the company's M&A screening hopper as emerging candidates.

In Part 2, we look at how BP's strategic direction has changed since 2015.