BP: Adapting to the times - Where were they now? (Part 2)

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 2: Where are they now?
With oil prices appearing to stay lower for longer, BP’s priorities have changed and all large M&A is on hold. Focus is on cost cutting, targeting breakeven of USD 50-55/bbl over the next year and farming down high working interests and material exploration commitments.

On the opposite end of the scale, the BP team remains busy on divestment with a target of offloading USD 3-5 billion this year – this compares with a run rate of USD 2-3 billion per year for BP. However recognising the oil price environment, divestments are aimed at non-oil price linked assets, namely midstream and refining. BP shared that there are no country exits on the mid/downstream side, so the portfolio tidy-up will very much be pruning within the portfolio.

As oil prices recover, BP will begin looking at reshaping the portfolio for the longer term and the focus will be on OECD assets (i.e. as opposed to companies like Tullow, which BP have been reported to be monitoring for years). Of note, BP noted that any material acquisitions will likely be in US tight oil, where BP see a clear gap compared with its peers. Oil sands are a “no” following COP21 and despite other majors investing in renewables, there is currently no interest in this area given the loss making nature of this division historically.