BP Pushes High Margin Projects, LNG Supply Growth

BP Plc plans to deliver on two key fronts for the supermajor by 2025 as it brings online additional hydrocarbon production and improves LNG supply.

Projects in the queue will assist the U.K.-based company in reaching its 2025 targets of “200,000 barrels of oil equivalent per day of high margin production from new major projects … [and its] LNG supply target of 25 million tonnes per annum,” BP said in its second quarter 2023 earnings press release.

BP also reported a replacement cost profit of $2.6 billion in second-quarter 2023 compared to $8.5 billion in second-quarter 2022, reflecting significantly lower oil and gas realizations, down 38%.

“BP missed earnings expectations in the second quarter, driven by lower refining and oil trading, but indicated confidence for a stronger second half of 2023, backed up by an increased shareholder returns program,” Wells Fargo analysts said in an Aug. 1 research report.

“While this uncertainty is still reflected in our discounted valuation vs. international oil company peers, BP's increased focus on higher-returning oil and gas and green investments increases our confidence in the company's long-term potential value accretion,” the analysts added.

In the first half of 2023, BP started up two projects: the BP-operated Mad Dog Phase 2 in the Gulf of Mexico and the Reliance-operated KG D6-MJ in India, which combined will add around 90,000 boe/d of net production by 2025. Two more start-ups are expected during the second half of 2023: the Tangguh expansion in Indonesia and Seagull in the U.K. North Sea. And the GTA Phase 1 in Mauritania and Senegal is now slated for start-up during first quarter 2024, BP CEO Bernard Looney said during the company’s Aug. 1 earnings call with analysts.

Looney also said BPX Energy, BP’s Lower 48 business, boosted production by about 9% in the first half of 2023 compared the same period a year ago and expects to start up its second processing facility in the Permian Basin by third-quarter 2023, further de-risking its “target of 30%-40% production increase by 2025 relative to 2022.”

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BP’s overall upstream production was 2.27 MMbbl/d in second-quarter 2023, down by 2.5% from 2.33 MMbbl/d in the prior quarter — but up compared to the 2.20 MMbbl/d produced in second-quarter 2022.

Looking forward, BP expects both reported and underlying upstream production in 2023 to rise compared to 2022. The company expects production to average 2.3 MMbbld/ in 2025 and 2 MMbbl/d in 2030.

“If you look at underlying oil and gas production, we'll actually grow production through the middle of the decade, and it will be relatively flat through the end of the decade,” Looney said during the call and in response to an analyst question about the company’s lower future production. “There are certain barrels within our portfolio that, quite frankly, are probably better off in someone else's hands. And that's what this is about. It is about a high grading of our portfolio.”

BP’s “and,” not “or” strategy

During the call, Looney said BP’s strategy included a focus on producing hydrocarbons as well as reducing carbon emissions in the future.

“So very clearly our strategy is what we call an ‘and’, not ‘or’ strategy. We are investing in today's energy system and — not or — we are investing in accelerating the energy transition. We're not making a choice between one or the other. We believe the world needs both, and we believe our shareholders are best served by us investing in both. So it's [an] ‘and’ not ‘or’ strategy,” Looney said.

Regarding LNG, Looney said BP was growing supply, and he remains confident the company can deliver on its supply target of 25 million tonnes per annum by 2025.

BP’s third-party offtakes have made good progress with 15 cargoes from Coral offshore Mozambique and Freeport LNG on the Texas Gulf Coast now back to full contractual offtake. BP also expects additional volumes from the start-up of Tangguh Train 3, the company said in the release.

“Just on the LNG portfolio itself, we have a number of very large gas basins to take forward in the second half of the decade... Browse [with] 14 Tcf is enormous … we have [the] Oman expansion, Abu Dhabi potential expansion, 22 Tcfs in the Haynesville and Eagle Ford to develop, more in Trinidad, more in Azerbaijan,” BP CFO Murray Auchincloss said during the call.

“So, there's lots and lots of gas opportunity inside the resource portfolio. And we'll just be very returns driven and choose the right ones to drive forward,” Auchincloss said.