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BP prepares to 'keep the discipline' with $50 oil over next 5 years

Rather than wait for a commodity price surge, BP PLC is preparing for a world where Brent crude oil prices remain in the neighborhood of $50 per barrel for the next half-decade, company officials said Aug. 1.

CEO Bob Dudley said on BP's second-quarter earnings call that increased production from the U.S. had largely wiped out cutbacks from OPEC nations, stopping projected price increases. As a result, he said, the company is taking a conservative approach to planning.

"Thinking about $50 oil for the next five years is the numbers we're going to use right now and keep the discipline about it. That will bring down the cost structures even further in the industry. The U.S. shales are a swing producer," he said. "In terms of our thinking, getting BP to work, getting our break-evens well into the 30s and thinking of it as a rough $50 over the next [five] years is right now our thinking."

CFO Brian Gilvary said the company plans on a CapEx budget of between $15 billion and $17 billion for 2018 but noted that it could be reduced if prices reach uncomfortable levels.

"I think we probably see oil prices firming through this quarter as we see demand continuing to grow. That will probably taper off in the back end of this year," he said. "So I think a range for next year around $45 to $55 seems like a reasonable assumption today, but a lot could change between now and the end of the year around supply and the demand side of the equation. But in terms of capital, assuming we're around $50 a barrel for next year, then we'd be at the low end of our capital range. And if we saw a prolonged period down at $45 a barrel, we could go below that $15 billion."

While BP looks to find ways to ensure that it can turn a profit with oil prices in the $30s, Gilvary said, the company's technological advancements now allowed it to turn a profit in the Lower 48 states with gas prices below $3/MMBtu. "For last year, we were cash break-even below $3. And for first half of this year, we're cash break-even below $3. So therefore at $3 an MMBtu, we'd be generating cash," he said.

BP reported a profit of $144 million for the second quarter, well down from the $1.45 billion profit reported in the first quarter but significantly better than the $1.42 billion loss suffered in the second quarter of 2016.