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BP targets sale of 600,000 boe/d capacity by 2025 to shrink upstream unit

Highlights

Plans sale of non-core, lower-margin resources

Still planning to growth US shale production

Eyes 200,000 b/d of refining capacity sales

London — BP expects to sell off around 600,000 boe/d of oil and gas production capcity over the next five years as part of its ambitious transition from an integrated hydrocarbons producer to become a global energy major, its upstream head Gordon Birrell said Sept. 16.

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Under the plans, BP's upstream production -- excluding its share in Russia's Rosneft -- will fall from 2.6 million b/d of oil equivalent in 2019 to around 2 million boe/d by 2025, Birrell said in a strategy presentation.

Some 200,000 boe/d of the reduction is from already completed divestments, he said, adding that BP plans to maintain the base decline rates of its existing portfolio at 3-5% a year.

BP is targeting $25 billion of divestiture proceeds by 2025 as it reshapes its portfolio, of which up to $13 billion is already agreed from recent sales of Alaskan and petrochemical assets.

"We do expect to divest some lower margin volumes in line with our overall intent on portfolio focus," Birrell said.

"Overall, we expect a favorable evolution in the production mix, creating a more resilient portfolio," he added.

Europe's number two oil company first unveiled its bold new strategy to shrink upstream production by at least 1 million b/d of oil equivalent, or 40%, by 2030 in early August.

High-grading mission

Although selling off higher-cost, carbon-intensive resources, Birrell said BP still plans to grow its production in high-margin regions such as the US shale and the Gulf of Mexico.

In the US shale portfolio, ongoing "high-grading" will focus on the Permian and east Eagle Ford basins. BPX Energy, its US shale unit, plans to see breakeven oil and gas prices average $35/b WTI and $3/MMBtu Henry Hub in 2021, and is targeting projects with at least 30% post-tax returns at $45/b WTI and $2.50/MMBtu Henry Hub.

Looking ahead, BP expects roughly half of its capital expenditure to be on oil and gas with the other half on low-carbon energy. New drilling will focus on "emission friendly and resilient barrels" with no drilling in new countries. New exploration spend will focus on creating new production in core regions near its existing project hubs.

"For oil, almost all of the strongest opportunities that would fit within our capital frame are tiebacks or infills," Birrell said. "There is also a heavy weighting to highly resilient regions like the onshore and offshore US."

Refining selloff

In terms of which future upstream development to prioritize, Birrell said BP's 16 billion boe of discovered resources in its business plan give it the equivalent of over 20 years of investment choices for the most "margin accretive options."

"We have quality through choice," Birrell said. "It means we don't have to explore, although a focused exploration program can deliver higher-margin barrels, displacing other options. We don't need to acquire resources and we have considerable flexibility on divestment."

Looking ahead, Birrell said BP expects to see its proved reserves-to-production ratio, or reserves life, fall to around eight years in the future.

Downstream, Birrell said BP plans to make its whole refining portfolio rank in the world's top quartile by net cash margin in 2025.

Noting that five out of eight of BP's operated refineries were in the top quartile in 2018, Birrell said the company expects to divest least 200,000 b/d of refining capacity by 2025 when its refining portfolio will be less than 1.5 million b/d. By 2030, its refining assets are expected to fall to 1.2 million b/d.

"In a similar way to our oil and gas assets, we intend to high-grade the portfolio over time through divestment of assets to focus on delivering earnings growth and decarbonization," Birrell said.