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BP forecasts further drop in oil, gas output this year as asset sales bite

Highlights

Q1 upstream output falls 14% on year despite OPEC+ easing

Gas project ramp-up to help ease asset decline

Sees market recovery, return to normal stock levels by year-end

London — BP on April 27 forecast a further drop in its upstream production this year due to the impact of asset sales on its portfolio, as it reported a 14% year-on-year fall in upstream oil and gas output for the first quarter.

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In a results statement, the UK major said second-quarter production would be even lower than first-quarter production in both its conventional operations and newly created 'gas and low carbon' unit due to a combination of asset sales and maintenance, the latter in the North Sea, Gulf of Mexico as well as Trinidad and Tobago.

The downbeat production outlook follows a 10% drop in the company's 2020 output, mainly attributed to asset sales in its US shale business and Alaska. Upstream production in the first quarter hit 2.22 million b/d of oil equivalent, excluding the company's near-20% stake in Rosneft, due to the asset sales, reduced investment and asset decline, BP said.

"For full-year 2021 we expect reported upstream production to be lower than 2020 due to the impact of the ongoing divestment program. However, underlying production should be slightly higher than 2020 with the ramp-up of major projects, primarily in gas regions, partly offset by the impacts of reduced capital investment and decline in lower-margin gas assets," BP said, noting its startup of two gas projects in recent days, in Egypt and India.

BP responded to the global price crash and pandemic by slashing its capital expenditure by 21% last year, starting in the second quarter, and has since said it expects to see its oil and gas output fall by 40% by 2030 as it shifts toward lower-carbon energy production.

Recovery path

However, in a broadly optimistic results statement, CEO Bernard Looney hailed the company's success in lowering its net debt and reviving its cash generation, and forecast an improvement in oil market conditions.

"The oil market is set to continue its rebalancing process. Global stocks are expected to decline and reach historical levels (in terms of days of forward cover) at the end of 2021," BP said. "Oil demand is expected to recover in 2021 due to strong growth in US and China and as the distribution of vaccinations gains momentum and lockdown restrictions are gradually lifted," it added, noting also that OPEC+ decisions would play a significant role.

In the downstream, "industry refining margins are expected to improve over the course of 2021 compared to the first quarter, with the recovery in demand and the closure of some capacity supporting higher utilization rates compared to the exceptionally low levels seen last year. However, refining margins are expected to remain weaker than pre-COVID-19 levels," BP said.

Looney noted the arrival of the new platform that will serve BP's Mad Dog phase 2 project in the Gulf of Mexico this month, and said: "We've delivered disciplined strategic progress right across BP, including building a high-quality offshore wind business, making great strides in our electrification agenda and setting ourselves up for further growth in the Gulf of Mexico."