BAKU, Azerbaijan, Jan.21
By Leman Zeynalova – Trend:
BP has committed to the most radical pivot of all in oil majors, Trend reports citing Fitch Solutions.
“A 40 percent reduction in oil and gas production by 2030 will see traditional upstream capex fall sharply as investment is diverted to low carbon businesses. BP believes that this is an appropriate rate to transition rapidly while still balancing growth in cashflow and returns as well as value over volume. Exploration is currently limited to existing countries with no further expansion into new countries,” the company said in its latest report.
As part of this strategy, low carbon investment are expected to come in at USD5.0bn per year from current levels of near USD0.5bn, said Fitch Solutions.
“BP will rely on a low-cost portfolio of upstream investments at less than USD9/boe development cost with an average payback period of five years to fund efforts to diversify and transform into an integrated energy company. This strategy will reduce capital intensity by narrowing investment to only the highest margin barrels and projects.
A key element of the strategy will be divesting internally uncompetitive assets to free up capital to further accelerate the low carbon efforts and capture growth. The push to diversify is probably the most extreme of all the paths proposed by the oil majors and 2021 investment plans look geared towards executing the strategy,” said the company.
The nature of capex reductions opens the door to possible increases in investment if market conditions improve, according to Fitch Solutions.
“The overriding strategy for the oil majors is to prioritize investment in value over volume. High grading portfolio divestment was used as a source for both cut underperforming assets and improving cashflow. All the majors are preserving the ability to modulate capex up or down to provide resiliency and take advantage of a low-price environment for equipment and services. Given the rapid rise in Brent over the last several months, if oil prices continue to rise and consolidate gains, 2021 capex could increase over these early estimates from the last quarter of 2020.
Most of the capex reductions to date were made on short-cycle projects for infill drilling or the tie-back of existing fields, and expansion of existing operations which by their nature would allow a quick return to development and construction. The bulk of these project types could see FID rapidly granted should price gains continue into 2021. Long-term efforts to exploit natural gas reserves and increasing LNG exports will likely remain a key pillar of future investment and we expect all the majors to prioritize these areas of investment.”
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