WASHINGTON — When John Minge took over as BP America’s chairman and president in February 2013, he inherited some hefty work, including presiding over continued cuts to the company’s portfolio, as the firm sells assets to pay legal bills, claims and penalties associated with the Deepwater Horizon disaster.
Minge, who succeeded Lamar McKay in the role, is a former driller who has been with BP for more than three decades, including his most recent stint in Alaska.
In an interview with FuelFix, he spoke about the past two years, the company’s cuts and its future.
Interview excerpts, condensed and edited for clarity:
Q: How should people be thinking about BP now?
A: “If I were to stand back and say what do i think the story of BP is, it’s a huge kind of recovery, turnaround story, when you think back to a devastating accident, in 2010, where 11 people were killed, where we had a tremendously bad spill and it impacted a lot of people, and we as a company said we were going to stand up and we were going to make it right. By making it right we’re going to stop the spill we’re going to clean it up and we’re going to pay people back that were harmed. That’s what makes me most proud about our company: that we’ve done that and that we survived it.”
“If I think about BP in America, we have more American employees than we do any other nationality. We’re the largest energy investor in America over the last five years. We have more capital employed in this country than any other country in the world. It’s the only country where ever single one of our business lines — upstream, refining, marketing, petrochemicals, wind, oil and gas trading — every business touches the boundaries of the United States. So the scale is big, the importance to the company is there because it’s sort of 25 or 30 percent of everything, whether you look at profit or cash flow or employees or people employed or (any other) metric.”
“To be where we are today, four plus years after a devastating accident and the way that we’ve responded, I’m proud of our employees for the resilience they’ve had.”
“After the accident, we had to sell a number of assets. A fair chunk of that came in the United States, but what we’re left with and what we have is a very high-quality portfolio. (That includes) Alaska and how we’re positioned there to the lower 48 and what we’re doing with the lower 48 separation, the Gulf of Mexico, the fact that we’ve made major investments into our refining assets (and) petrochemicals. We’re set up well for the future, whether high oil prices or low oil prices. I think our future is bright.”
Q: Has the oil spill story dominated BP’s business successes? Will the spill ever be in the company’s rearview mirror?
A: “It has been a dominant story for sure because it was a bad accident. I think I don’t know if it will ever be in the rearview mirror. It will be part of our company, — there is not a person in our company that will ever forget it. There’s not a person in our company that’s not been impacted (by it).”
“That accident brought us to our knees, it shook us to our core.”
“We absolutely want our reputation to improve. We definitely want to be seen as we’re a company that’s headquartered in London but we’re an international company with a bunch of American (employees), we’re creating 240,000 jobs in this country, we’re paying tax revenue, we’re paying royalty revenue, we’re giving back to the community. I would love, as much for our employees, to be able to have a sense of we are a good solid company that had a bad accident and that our future is great and … we are safer, we are stronger than we have ever been. How other people see us, I can’t control that. All we can control is what we do going forward, how we do our business, how we show up and how we get back in the community. That to me is more important.”
Q: BP divested $40 billion in assets then announced a second round of $10 billion. How are you approaching that?
A: “Value over volume (is) a big part of our strategy. It’s that focus, strategically, of saying we’re going to pursue value over volume, we’re going to have a strategy that delivers shareholder value through operating cash flow, that it enables us to fund the best projects in our portfolio, we’re going to limit the amount of capital we spend in the company so it enforces the choice of the best projects and we’re going to have a progressive dividend. And the asset disposals that we have on a post tax basis we’re going to distribute most likely through share buybacks.”
“We haven’t really said the $10 billion is an absolute. With oil prices going down, if we don’t get fair value, then we could reconsider that. We haven’t changed or aimed off, the 10 is there. but typically we would be looking at early life, late life (projects), things that don’t quite fit, or that wouldn’t compete for capital in BP and that somebody else values higher than we value.”
Q: Is that the way I should think of Alaska?
A: “Yes. Alaska wasn’t any other reason than that was the right thing to do. Having worked up there, Endicott and Northstar were late-life assets that were not competing for capital inside of BP. It’s really right up the alley of an independent like Hilcorp. Milne, we kept 50 percent of that, which is great, and I believe that will be a crown jewel asset for Hilcorp. They’ll invest more money, they’ll go in like we have done with the lower 48 and I think manage that extremely well and then we can focus on the big field. it fits our strategy: produce the giant field (with) reservoir management (and) technology and then gas ultimately. There’s 35 trillion cubic feet of gas, that’s 6 billion barrels of oil equivalent of gas that has zero risk in terms of discovery. We’re reinjecting 6 to 7 billion back into the reservoir today and working with (other companies) we’re probably more aligned than we have ever been in terms of how to develop that resource through an LNG project.”
“So Alaska was a decision for us to focus. It doesn’t say anything about our commitment to Alaska. It says we’re going to focus on the biggest prize and find a way to develop the vast resources that are available.”
Q: How does the drop in oil prices affect a company like BP?
A: “I’ve been in the oil and gas industry for over 30 years, and I’ve been through ups and downs — a lot of downs, especially early — and one of the most surprising things over the last 10 years was the robustness of the price, except for 2008 and 2009, due to the financial crisis.”
“A drop in commodity price of 35 or 40 percent affects everybody. I think we’re really in a stronger position than some. One, we sold a bunch of our assets … at a time when prices were over 100 bucks and we got fair value for that. So people trying to sell now — a tougher time.”
“We’ve got a more-focused (portfolio). It’s a smaller portfolio where a lot of risk has been removed, but it’s the highest-quality stuff, so we can focus there. The other thing is we have been working simplification projects, efficiency projects for better than a year now. We’ve been able to, over the last couple of years, really focus in on what are the most important things that we do, how do we do it — systems and processes and what not — and we have a real focus on simplifying how we work and what we do. This is not a cost-cutting exercise. What we’re looking at is the activities, what we choose to do, how we choose to do them and then being more efficient with them.”
“It affects our company. It affects everybody. We’re in a strong position given where we’ve come from and what we’ve already had to be doing. I think we’re a little different than many. Our balance sheet is stronger, we’ve forced our capital program to be limited, even though we have more choice than that, and I think when the industry goes through these kind of down dips, there’s always opportunities, I think we’re in a strong position, relative to others.”
Q: Exxon Mobil’s Rex Tillerson cast the oil price slide as a market correction, even going so far as to say it’s good for the industry, spurring some rationalization.How do you view it?
A: “I actually do think a market correction like this is good for the industry. The industry is overheated, it drives a lot of inflation in. (This) forces companies to be more efficient, and I think ultimately that’s good because the vast majority of our capital that we spend goes to other companies. When oil prices go up, costs go up — costs of goods and services — and when the oil price comes down, the industry typically deflates, and we would expect that to happen. It usually happens pretty quickly. It focuses companies back on the fundamentals, on what is important, on what matters, and it drives innovation.”
Q: There was trading recently driven by speculation that Shell was going to make a plea for BP And there was analyst commentary that along with Russia sanctions and the oil spill, BP is vulnerable in this price environment. Do you think so?
A: “No, I don’t. I think Russia is a very strategic play — a long-term play. We comply with the sanctions. But that investment is a long term you know investment. The limitation, uncertainty is there. And we’ve paid out an enormous amount of money in response to the spill and also in the claims, and we’ve settled some things. Things got to a point where we needed to fight back and defend ourselves and litigate matters. And that’s a long-term strategy.”
Q: One of your biggest moves this year was the decision to spin off onshore oil and gas development in the continental United States and install SandRidge Energy’s David Lawler as its leader. Can you help me understand how a separate business unit within the same big company can be more nimble and be all the things you want out of a shale player that maybe a big integrated can’t?
A: “The lower 48 business is very different than most other basins in the world. It is a fast-moving, hyper-competitive environment, where decision making is fast, where technology innovation is fast, where decisions are made at light speed and the market is working.”
“Within the lower 48, we looked at it and said in this competitive marketplace, are we competitive? No we weren’t. Do we like the resources that we have? Yes. Do we want to keep them? Yes. If we’re going to keep them, can we actually make them more efficient within BP? Answer: Maybe, but it would take a long time.”
“I sat on an industry roundtable last year at CERA Week where that was the fundamental question: Could super majors compete in the lower 48, or is that really a game for independents? Pretty much every person, whether they were super majors or independent, said it was pretty tough to compete as a super major, just because of the environment you were in.”
“Dave coming in, I think he is going to do a fabulous job. In talking with him, getting to know him, he says he cannot believe the resource base, how good it is, how much we have.”
“What this separation will enable is some real innovation and kind of knock the rust off, and really lubricate the system, and I think we’ll compete very well. So what I’m saying is if you have good resources, if you have good people, if you have know how, then I think you can compete, and we … needed it to be more flexible, we needed to get more decision making down to the business.”
Q: How do you view the Gulf of Mexico? Does it have decades left to give? Is the Paleogene — or the Lower Tertiary — where the promise is now?
A: “I think there is still a lot of excitement in the deep-water Gulf of Mexico. If you look at our portfolio, we have four operated hubs (where) we’ve produced 20 percent of the reserves so there’s 80 percent still to play for. Paleogene, with four discoveries, that’s (our) long-term future. There’s still a lot of work to do for many, many years in the deep-water Gulf of Mexico.
“One of our strategic objectives is to be world class in deep water. I’m glad the company decided to do that in the aftermath of the accident because it could have been easier to say we’re going to stay away from that, but we actually redoubled the effort, so this is going to be part of our heartland.”
“The Gulf of Mexico is one of the greatest examples of a turnaround story for BP this year. (Production is up over last year). We are having a great year, so we have operational momentum. we have 10 rigs in the field, we’ve brought on major projects, we brought on big wells and the team are really excited, because you can kind of see that the activity that we’ve got going in the field is actually making results. They see it in the top line; our operating efficiency is getting better.”
Q: Where do things stand in refining?
A: “Whiting has capability to now run close to 80 percent heavy (crude), but it can also run Bakken and also can run Gulf Coast crude, there’s not much it couldn’t do. That gives us opportunity to have flex about the supply. It is a complex refinery that is advantaged in terms of feedstock and then it’s all about how efficiently you run it. And i know we’ve got goals in place, we know that we can be more efficient.”
“To me, there are certain things you can control and certain things you can’t. You can’t control price, but what you can control is how you operate, and how efficient you are. So first focus on safety, do what you need to be safe at all times. Then run the refineries and upstream the best you can, the most efficient.”
Q: You’ve been on the job nearly two years. What are you most proud of, and what do you wish you’d done differently?
A: “It’s not really my achievements. I’m part of a team, and I think what I’m proud of is being part of BP America with a group of people that are resilient and are fighting for our business, and they’ve been resilient to some pretty extreme situations in the aftermath of the accident. I look at the performance of the business today and how we are safer and our numbers continue to show that, how we are stronger, how everyone has business plans and everyone’s got a future. With litigation what we’ve asked our employees and our businesses to do is to say focus on your business, focus on what matters, lets allow the lawyers and a small team to compartmentalize away this issue and trust us that we’ll look after it. And actually probably what I am most proud of is that that’s happened within the company.”
“Everywhere I go, employees say they want to get updated, they always want to know, but then they’re always about their business and about delivering.”
“Coming in from Alaska what has been heartwarming to me is that no matter what you read in the press if you go to the Gulf Coast, you walk the beaches, you go fishing with a guy, you go into a restaurant, you go into a small mom and pop shop and tell them you’re with BP, they thank you, they tank me, they thank BP, they thank us for doing the right thing. They question whether other oil companies would do the same thing.”
“We had this accident, but it’s about doing the right thing going forward and continuing to defend.”
“In the aftermath of the accident, we absolutely all tried to put it behind us. We did a couple settlements. Those did not go as well as they could and we had to stand up and fight back. It was work that needed to be done. We’ve had some really important debates: What would the next company do in the aftermath if you sign a settlement and actually people could get money that weren’t harmed by you? What happens when people try to take advantage? As I travel around the number of people who have said it’s about time you stood up for yourself . . . is just an indication . . . to me that people realized how much we did.”
“We have great investment opportunities in the U.S., but I think what’s happened to our company through litigation over the last four years has changed our calculus about the risk. I just think it’s hugely important. I think we look at investments in America different than we did before, due to what we’ve been through.”