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BP forecasts $1 billion restructuring in 2015 with job losses likely

19 December 2014

BP gave details of its Upstream oil and gas business strategy to 2020 in a presentation on December 10 which included news of a restructuring operation costing about $1 billion to end-2015. Reuters said this would mean thousands of job cuts across the firm, citing sources.

BP later confirmed that management jobs would be shed across the organisation as it underwent a corporate restructuring to better reflect the size of its business after four years of divestments.

Group Chief Executive Bob Dudley said: “We have already been working very hard over these past 18 months or so to right-size our organisation as a result of completing more than $43 billion of divestments. We are clearly a more focused business now and, without diverting our attention from safety and reliability, our goal is to make BP even stronger and more competitive.

“The simplification work we have already done is serving us well as we face the tougher external environment. We continue to seek opportunities to eliminate duplication and stop unnecessary activity that is not fully aligned with the group’s strategy.”

BP Upstream chief executive Lamar McKay said:  “Although the current environment is challenging, BP is well-positioned to respond and manage our Upstream business for the long term. We expect to see growth from our conventional and deepwater assets and an increasing contribution from gas. And we also have a quality pipeline of opportunities that we believe are capable of extending underlying growth well beyond 2020. Our focus throughout will remain firmly on safe operations, execution efficiency and greater plant reliability.”

As an integrated group, not all BP’s businesses are equally exposed to the oil price.  About one third of its Upstream projects around the world are operated under production sharing contracts and it is also investing in high quality gas projects which are typically less sensitive to oil price movements.

Importantly, while BP approves projects at $80 a barrel, it also already tests each at $60 a barrel to understand the resilience of the portfolio at a range of prices. It will continue to consider lower price sets as appropriate.

BP says it has a strong balance sheet, with historically low gearing of 15% at the end of the third quarter of 2014, which provides time and flexibility to adjust to changes in the environment.

Across the Group, BP has said it will be looking to pare or re-phase capital expenditure without compromising safety or future growth. In October, BP told investors this could result in reductions of $1 billion to $2 billion in capital expenditure across the Group in 2015 against guidance of $24 billion to $26 billion laid out in March. This will be reviewed further as part of the 2015 plan, recognising the current outlook for oil prices.

When oil prices fall, there is typically deflation in the industry as a whole. Together with its already greater focus on streamlining activity, this would be expected to further help BP align its cost base with its smaller footprint and reduced activity levels.

Amongst the milestones, over the last three years, BP Upstream says it has improved safety and reliability of operations; doubled exploration drilling activity; and rebuilt Gulf of Mexico production. It has also increased the rate of reinvestment; made $32 billion of divestments in the Upstream business alone; and, by year end, also expects to have delivered 15 new upstream projects with average operating cash margins double the 2011 average.

Between now and 2020, the Upstream team’s focus will be on delivery, through safe and reliable operations, strong execution in the existing base business, and the start-up of a suite of new projects which are expected to be capable of adding over 900,000 barrels of oil equivalent a day of net incremental production to BP’s portfolio by 2020.

BP will also be progressing opportunities expected to continue to drive underlying growth into the next decade as it builds out its well-established conventional and deepwater oil positions and a distinctive and material portfolio of gas options.

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