"As you know, we have held the view for some time that oil prices will be lower for longer, but whatever the old oil price charts look like we are clear on what we need to do," Dudley said this morning.
CFO Brian Gilvary added, "Although demand has been stronger, OPEC production is running higher than the 2014 average and production in the United States has remained resilient. The recent agreement to lift certain Iranian sanctions has also raised the prospect of additional production coming onto the market."
In short, BP's outlook can be encapsulated by the phrase "sober realism." The market is what it is. BP has accepted this reality. What follows is how it has done so, and how it plans to continue doing so.
BP sees its restructuring charges related to layoffs increasing to approximately $1.5 billion by the end of 2015- up from $1 billion estimated in December.
BP CEO Bob Dudley said on Tuesday morning's call, "We will continue to identify more opportunities for simplification and efficiency,” and the increase in restructuring charges “reflects a faster pace” of cost-cutting across the company.
He said, “There are further gains [to be made], we’re sort of well into restructuring costs in the upstream and plan to continue later this year...Certainly it’ll be in some of our big centers around the world — Houston, some more in Aberdeen.”
Gilvary reiterated Dudley's previous comments during the Q&A portion of the call, saying that further headcount reductions could be expected before the end of the year. "...We're seeing significant headcount reductions both in terms of our own employees but also contractors where we run a bigger contractor work...You're also seeing significant headcount reductions both in Upstream and Downstream as we progress through the year and I think you'll see more of that before we get to the end of the year."
2. Capex Cut For Second Time In 2015
2Q15 Capex was $4.5 billion, bringing the total for 1H15 to $8.9 billion. BP said Tuesday that it has cut its 2015 Capex for the second time- to below $20 billion (from $22.9 billion last year). BP also said it has agreed on $7.4 billion of divestments towards the current $10 billion divestment program.
BP spent $9.1 billion in 1H15 and has completed the sale of $7.4 billion in assets, which is pursuant to its plan to divest $10 billion in assets by the end of 2015.
BP says its simplification and efficiency programs to sustainably reduce non-safety-critical cash costs are delivering results throughout the company. Total cash costs thus far this year are estimated to be approximately $1.7 billion lower than the same period last year. In 2Q15, BP took a further $270 million non-operating restructuring charge, bringing the total over the past three quarters to $920 million. It now expects restructuring charges to total near to $1.5 billion by end-2015.
Gilvary, commented: “We can see clear progress in our capital program and from our work to reset and reduce cash costs. Our focus remains on rebalancing the company’s sources and uses of cash in a lower price environment.”
He added that amid the current price environment, BP is "exercising strict capital discipline across the Upstream. We're testing the resilience with project economics the low price environment and progressing only the highest quality options in the portfolio. We're maintaining optionality in remaining resources and recycling projects where we see potential for optimization."
3. What About Iran?
Dudley said Tuesday that BP is plans to pursue upstream opportunities in Iran following the easing of sanctions. However, he said, it is not yet clear what Tehran's intentions are for its new oil contracts (which are tentatively slated to be introduced in London later this year).
Speaking to reporters in London, Dudley said BP's upstream involvement in Iran will largely depend on when and how sanctions are rescinded. He said, "It is not clear to us what their plans are (on contracts)."
4. Looking Ahead: "Value Over Volume"
Dudley and Gilvary emphasized on Tuesday morning's conference call that BP is committed to rebalancing the company's financial framework over a ~2 year period.
"We'll be getting more activity through less capex going forward...We have a framework to achieve growth through a lower capital," Dudley noted during the Q&A portion of the call.
5. 2Q15 Snapshot
BP's underlying replacement cost profit for 2Q15 was $1.3 billion, compared with $2.6 billion for the previous quarter and $3.6 billion for 2Q14. The result reflected the impact of continued low oil and gas prices, a reduced contribution from Rosneft, and one-off charges arising from circumstances in Libya, but also continuing strong earnings from the major's downstream businesses and lower cash costs throughout the company.
Dudley commented, “The external environment remains challenging, but BP moved quickly in response and we continue to do so. Our work to increase efficiency and reduce costs is embedding sustainable benefits throughout the Group and we continue with capital discipline and divestments.”