BP eyes post-Ida oil and gas output recovery, US shale growth

BP anticipates higher fourth-quarter production from both its upstream business and LNG-focused "gas & low carbon" unit as it recovers from Hurricane Ida and eyes growth in US shale, it said Nov. 2.

The UK major reported a 6% year on year decline in its upstream output for the third quarter to 1.3 million b/d of oil equivalent, reflecting hurricane impacts, maintenance, US shale divestments and price impacts on volumes it is entitled to in some countries. Hurricane Ida and its aftermath dented output by 60,000 b/d in Q3.

However, BP's upstream output was up 5% from second-quarter levels as an industry-wide maintenance uptick eased. Also, production in the gas & low carbon unit was up 6% on the year at 889,000 boe/d, and BP's portion of output from its Rosneft stake was up 4% on the year at 1.1 million boe/d.

BP highlighted the startup in September of the oil-focused Thunder Horse South Expansion Phase 2 project in the Gulf of Mexico and the gas-focused Matapal project offshore Trinidad, although it reiterated upstream production for the year is likely to be lower than last year, reflecting shale divestments. CEO Bernard Looney noted expectations for a further boost in the Gulf of Mexico next year with the startup of Mad Dog Phase 2.

Chief Financial Officer Murray Auchincloss forecast a recovery in oil demand to pre-pandemic levels sometime in 2022, saying demand of 100 million b/d had already been reached, and describing the price outlook as "constructive."

S&P Global Platts Analytics sees oil demand growing 4.7 million b/d next year to average 103.2 million b/d, some 700,000 b/d above pre-pandemic levels.

Defending BP's long-term pivot to low-carbon energy, he said the plan was for a "focusing" of the hydrocarbons business, rather than to get out of oil. "We should not use emissions reduction as a proxy for no new investments into hydrocarbon projects, so you will continue to see this company invest in hydrocarbon projects, and sanction new ones including LNG projects, as we high-grade the portfolio," Looney said. "We will deliver on our targets of reducing production, but that doesn't mean that there won't be new investment, including in LNG."

Looney added that work was progressing on forming a joint venture in Angola with Italy's Eni, intended to bring about efficiency improvements, and said the deal should be completed early in 2022, with the authorities showing "strong support."

On the company's BPX shale unit in the US, production -- which is weighted toward gas -- was down 12% on the year at 322,000 boe/d, reflecting efforts to slim the business purchased from miner BHP in 2018, as well as spending cuts in 2020. The company reduced the average number of rigs it operates across its Haynesville, Eagle Ford and Permian acreage from eight in the second quarter to six in the third quarter.

However, chief financial office Murray Auchincloss noted shale production was up from second-quarter levels in the third quarter and said BPX was likely to increase capital investment next year to around $1.5 billion, from $1 billion this year, with spending to be focused on eliminating Permian emissions.

"We're very happy with our BPX position, it's doing much better than we hoped when we acquired it, costs are well ahead of what we expected, drilling efficiency is well ahead of what we expected, reservoirs are showing up in the [Permian] Bone Springs that we hadn't anticipated," Auchincloss said.

The shale assets are "back to growth now," he added.

Auchincloss added BP was seeing some "base decline" in its shale production and at its Trinidad gas assets, but decline rates across the company in 2021 were likely to be at the lower end of, or below, its usual guidance of 3-5%.

Downstream recovery

BP also gained a boost in the downstream, although limited by higher maintenance and energy costs. Throughput at refineries BP operates was up 2% at 1.6 million b/d, led by Europe.

In electric vehicle charging, BP increased its charging rate by 45% compared with the second quarter to 40 GWh, propelled by fast and ultra-fast charging and collaborations in China and India, Looney said.

Financially, the company reported another strong quarter in the upstream business, but a $4.1 billion pre-tax loss in its gas & low carbon business before adjustments, reflecting the "fair value" of LNG hedges it expects will unwind over time as cargoes are actually delivered and if prices decline.

BP hedges its merchant LNG sales, but not sales of its equity production. Of the 20 million mt/year currently sold under long-term contracts, around 8 million mt derives from equity production and the remainder merchant volumes, Auchincloss said.

Overall, the company reported a $2.9 billion loss for the quarter, but an underlying profit of $3.3 billion, noting a further reduction in net debt. "Our businesses are generating strong underlying earnings and cash flow while maintaining their focus on safe and reliable operations," Looney said.