A BP petrol station sign is seen at dawn in west London October 25, 2011.TOBY MELVILLE/Reuters
British super-major BP PLC is diving back into the ultra-deep water of the Gulf of Mexico.
Some 18 months after the devastating Macondo well blow-out, the company says it has turned the corner on its restructuring effort and is embarking on an effort to boost production from the Gulf, where it expects to have eight rigs operating next year.
BP chief executive officer Robert Dudley said Tuesday the company is developing new growth opportunities, even as he announced it has increased its planned asset sale by $15-billion to $45-billion (U.S.).
"We have now reached a definite turning point. Our operations are regaining momentum and we are facing the future with great confidence," Mr. Dudley said in a webcast presentation.
"I believe we will build on our strengths to substantially grow operating cash flows, allowing us to directly increase returns to shareholders as well as invest for future growth."
Key to that growth is the company's return to operations in the Gulf of Mexico, where the Deepwater Horizon platform exploded in April 2010, killing 11 workers and causing the worst oil spill in U.S. history.
Mr. Dudley said BP already has three rigs operating in the Gulf on well-plugging and abandonment operations but, assuming regulatory approval, will target new production with five rigs operating by year end and eight by the end of 2012.
In total, BP's production declined 12 per cent in the third quarter from the corresponding period last year to 3.3-million barrels of oil equivalent. The company has sold off assets and was unable to maintain its output in the Gulf of Mexico due the slow nature of federal permit process for offshore drilling.
BP won approval last week for the U.S. federal regulator for a four-well exploration program in ultra-deep water, but will need specific permits for each well drilled. In total, the London-based giant expects to boost production by 1 million barrels per day in the next five years.
The London-based giant is not only focusing on Gulf of Mexico deep water but in high-risk, high-reward offshore plays around the world, including Brazil, Angola, India, Australia and China.
The company reported $5.3-billion (U.S.) in replacement cost profits – a key oil industry metric – compared to $5.5-billion in the same quarter last year. And it expects to increase its cash flow by 50 per cent over the next three years. That increase assumes BP completes funding of a $20-billion (U.S.) trust fund in 2012, and does not have to add it.
Analysts suggested Mr. Dudley is on the right track, but it may be too early to declare that the company has turned the corner.
"You can't say you are at the turning point until you actually get those [Gulf of Mexico]drilling permits, and that's not within your own direct control," analyst Peter Hutton, of RBC capital markets, said in an interview.
Raymond James analyst Pavel Molchanov said Mr. Dudley – who took over the reins a year ago from an embattled Tony Hayward – has adopted a more confident tone as BP seeks to emerge from the shadows of the Macondo disaster.
"They are certainly playing offence rather than defence right now," Mr. Molchanov said. "They are taking a more assertive, proactive stand to managing the business."
He said shareholders can expect management to increase the BP dividend – which was slashed after the blowout – and to resume a share buyback program. BP shares were trading at $60 (U.S.) at the time of the blowout and fell to a low of $27 in June 2010.