EXCLUSIVE -BP back on its feet but CEO senses no respite

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LONDON, May 21 (Reuters) – After the near collapse of his
company following the 2010 Gulf of Mexico disaster and a
three-year slump in oil prices, BP Chief Executive Officer Bob
Dudley is hardly relaxed.

“It doesn’t feel like we are in a serene time for any energy
company,” Dudley told Reuters in an interview.

BP is stronger today than at any other time since the 2010
Deepwater Horizon rig accident.

With oil prices at their highest since late 2014 and BP
shares back to levels not seen in more than 8 years, it is once
again in a position to contemplate boosting dividends and
acquiring, Dudley said.

Sitting in his office in BP’s central London headquarters in
St James Square, Dudley, 62, said he intends to carry on leading
the company into 2020 and navigate it through a phase of
expansion and new uncertainty following a tumultuous eight years
at the helm.

The oil and gas sector is looking to retain its relevance as
economies battle climate change by weaning themselves from their
dependence on fossil fuels, a major source of greenhouse gas
emissions.

For BP, it is a two-speed race.

The 110-year old company is undergoing its fastest growth in
recent history with new oil and gas fields from Egypt and Oman
to the U.S. Gulf of Mexico, riding a tide of higher oil prices
following the 2014 downturn.

It is gradually paying off more than $65 billion in
penalties and clean-up costs for the Deepwater Horizon accident
which left 10 employees dead.

Regarding the danger of the company going bankrupt at the
time, Dudley said: “The worst moment was when I heard that our
debt was untradable back in the summer of 2010… To me that was
a moment of the unthinkable was possible.”

Dudley says he no longer sees BP as an acquisition target
after facing years of speculation it could be bought out.

The company is focused on increasing production and cash
flow while reducing its large debt pile, after which it will
consider boosting shareholder returns such as dividends although
“we’re not at that point yet”, Dudley said.

Longer-term challenges also loom.

Investors are increasingly pressing energy companies to find
ways to adapt to the energy transition, and Dudley is looking to
strike a balance between reducing a large carbon footprint while
securing revenue.

“This is the great dual challenge that the industry and BP
faces: how to supply the world’s energy on multiple fronts of
growing population and doing it with less emissions,” said
Dudley, who was appointed to the helm of BP months after the
April 2010 spill.

BP, like rivals such as Royal Dutch Shell, is
betting on natural gas, the least polluting hydrocarbon, to
sustain an expected surge in demand for electricity as economies
grow and transportation is electrified.

Gas is also playing a key role as a back-up to renewable
energy such as wind and solar in power generation.

To that end, BP is expanding its gas production through new
projects in Oman, Egypt and Trinidad and Tobago.

Gas already accounts for over 55 percent of its production.

“I am optimistic about the climate change if you can combine
renewables wind and solar and natural gas. To me that’s part of
the big answer,” Dudley said in an interview with Reuters.

In the early 2000s BP introduced the slogan “Beyond
Petroleum” and adopted a sunburst logo after launching an $8
billion expansion into renewables. The company was forced to
write off its solar business 10 years later, but still retains a
large U.S. onshore wind business and biofuels plants.

Now, Dudley is taking a cautious approach, investing in
smaller start-up companies in renewables, clean fuels and
battery charging docks.

“We have to go slow and pick the right low carbon fuels,” he
said. BP “will be a broad-based company that supplies all forms
of energy that are needed that can be done economically.”

The company will invest $500 million per year in low-carbon
energy and technology in the coming years out of a total
spending of $15 to $17 billion, a range which Dudley said the
company could stay within.

“If a shareholder or someone else came to BP tomorrow and
said here is $10 billion to invest in low carbon energies for
us, we would not know how to do that yet.”

BP is also expanding its vast global network of petrol
stations and investing in convenience stores and charging spots,
hoping to retain its dominant brand as electric vehicles become
more popular.

“I’m not worried about BP in this area. The most strategic
thing we can do is to get our balance sheet strong so that when
we have the firepower we can do anything in these areas.”

LESSONS

BP expects demand for oil to peak in the late 2030s, after
which it will plateau and gradually decline.

For BP, whose roots go back to 1908 with the discovery of
Iran’s first oil field, the days of the black gold are far from
dead.

While oil prices in recent weeks have hit their highest
levels since late 2014 at $80 a barrel, BP are working on an
assumption that prices will remain at a range of $50-$65 per
barrel due to surging U.S. shale output and OPEC’s ability to
crank up output.

Mega projects involving complex, multi-billion facilities
such as huge offshore platforms that came to symbolise the
technological prowess of the world’s top oil companies are most
likely a thing of the past, Dudley said.

Instead, BP is opting for phased developments that require
less capital and less time to construct, which make them easier
to control at a time of uncertainty over oil prices.

“Many of the companies in the industry are remembering the
lesson learnt during the $100 oil era (which) is take it in
phases,” Dudley said.

BP is applying this approach in many of its main production
hubs such as Egypt and Gulf of Mexico, where it can continue
raising production into the early 2020s, Dudley said.

BP’s oil and gas output is set to reach around 4 million bpd
by the end of the decade, a level last seen in 2009, with more
than a fifth of that coming from projects started since 2016.

It is partnering with top oil producing nations which have
some of the lowest costs of extraction such as Oman, Azerbaijan
and most importantly Russia, where BP has a 19.75 percent stake
in Rosneft and where it draws one third of its
production.

BP has a relatively small shale business, focused mostly on
gas, but Dudley is considering growing in the sector, which has
attracted billions of dollars in investments in recent years.

“(Shale) comes down to economics and competitiveness on what
is on offer. So far they feel overheated… it is not a burning
need to fill that in the portfolio, but if it is attractive, we
will.”

BP could place a bid for BHP Billiton’s shale
assets, Dudley said.

 

RUSSIA

BP’s position in Russia has put the firm in the spotlight as
the United States and Europe tighten sanctions on Moscow.

Dudley, who sits on the board of Rosneft, believes BP can
continue there and act as a bridge between countries.

“We don’t apologise for doing business in Russia,” said
Dudley. “Certainly today within the boundaries of the sanctions
we can and do operate without issues.”

BP will continue to operate in Russia and expand projects
with Rosneft even though the company has had to turn down
certain offers to develop projects offshore or in the Arctic, he
said.

Dudley also said BP remained committed to its stake in
Rosneft, which it received following the 2013 sale of TNK-BP.