BP made its case for a brighter, albeit smaller, future on Monday, as BP CEO Bob Dudley and other key executives met with investors, explaining the company’s growth strategy and hitting on other topics.
The British oil giant has been selling off various assets and focusing on areas where it believes it can get the highest returns.
“We think we can develop these new projects at higher margins and not necessarily continue to divest,” Dudley said during the meeting, which was webcast, outside of London. “We are open to it, but we are not on a campaign to continue to shrink the company. If you shrink the company too much, you lose the balance point where you can’t generate the operating cash to put it back into very attractive projects.”
The company plans to increase capital spending to as much as $27 bil- lion by 2014 from $22 bil- lion, investing in existing production sites and promising exploration opportunities.
The company plans to increase production in areas such as Angola, Azerbaijan, the Gulf of Mexico and the North Sea and to expand investment in Brazil, southern Africa and in the Gulf of Mexico, with 15 major new projects expected by the end of 2014, Dudley said.
It plans to pay for the investment increases with an additional $2 billion to $3 billion in annual asset sales in the coming year and higher profits from its operations.
BP plans for the investments – and their anticipated profits – to offset, over the long term, the effects of $38 billion in planned asset sales, which it expects to complete by year’s end.
Overall production in 2012, however, is expected to decline as a result of the asset sales, and Dudley said at the investor meeting that Gulf of Mexico output may drop in 2013 before once again growing.
Dudley emphasized the company’s corporate culture shift to increased emphasis on safety, listing it as the first point of BP’s 10-point plan that the company had unveiled in early 2011.
“We know that safety is good business, and this will show up in stronger and more reliable cash flows in the long run,” he said at the investor meeting.
The safety discussion comes days after BP agreed to settle with the Department of Justice and the Securities and Exchange Commission on criminal charges related to the Deepwater Horizon disaster, agreeing to a fine of $4.5 billion and a guilty plea to 12 felony counts.
Dudley said the resolution of the criminal charges is allowing BP to focus on civil claims against it without “the distractions this would have raised.” The company faces a Feb. 25 trial over its civil liability in the 2010 Deepwater Horizon accident.
Dudley’s comments follow last week’s announcement by the U.S. Environmental Protection Agency that the British oil giant would be suspended from new contracts for federal government business. BP has said it is negotiating an administrative agreement, which would lift the temporary suspension.
Analysts have said that while the EPA decision does not have an immediate impact, BP’s stock price has been depressed, in part, because of uncertainty over the civil charges.
“Nobody makes money doing contracts with the government,” said Fadel Gheit, an Oppenheimer & Co. analyst. “Supplying the government is really not how they make their money – it is a minute, very low-margin business. BP just wants to make the peace. The biggest negative is how much unknown liability on what the final assessment of the liability is going to be.”
BP’s stock fell more than 50 cents Monday, closing at $41.19 Monday.
Analysts said that BP’s efforts to build up its war chest – including by selling its share in its Russian joint venture TNK-BP – would allow it to continue its upstream investments, even if its civil fines for the Deepwater Horizon accident prove higher than it has estimated.
‘Good bit of cash’
“They have a good bit of cash,” said Stacey Hudson, an analyst with Raymond James. “You won’t see a financial agreement that will make them compromise on their upstream plans. They are taking in a bunch of cash from the TNK-BP sale and they should be closing the refinery sale in the coming months, so they have a good bit of cash coming in from the asset sales. They have done these asset sales so that they would be in a good financial position, come what may.”