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Tony Hayward had better get used to defending his company’s push into the oil sands. BP’s newly-named chief executive officer is likely to be doing major Alberta acquisitions in the not too distant future.
Mr. Hayward took heat from the British press this week for BP’s first foray into the what’s being called the “dirty” oil sands - that being the company’s $11.7-billion (U.S.) joint venture with Husky Energy. The Europeans seem underwhelmed with the Kyoto-breaching nature of oil sands development.
Mr. Hayward’s response is that BP will be part of the solution to these environmental issues, as a long-term player in the oil sands. Expect to hear that refrain repeated.
What’s happening at BP is a slow but massive reversal of former CEO John Browne’s long-standing strategies. Mr. Browne judged the oil sands too expensive, and exited the play. Canadian Natural Resources picked up the properties and never looked back. Mr. Browne also felt liquefied natural gas (LNG) was too capital-intensive, so BP walked away from that sector in the early 1990s.
It’s not Kyoto criticisms that sting Mr. Hayward. It’s the concerns of energy analysts such as David Stedman at Daiwa Securities in London, who wrote this week: “We have argued for a number of years that BP has too narrow a set of growth opportunities.”
Mr. Stedman praised BP’s joint venture with Husky Energy, and a recently announced LNG project in Qatar, but said these initiatives only amounted to “a good start.” When you run the world’s third largest oil company, with a $232-billion enterprise value, then $11-billion investments qualify as simply dipping a toe in the pool, or the sands.
“BP may, in our view, turn to corporate acquisitions to gain a significant leg up,” Mr. Stedman concluded. Using BP’s guidance, the analyst calculates that the oil company will spend $22-billion on building its operations in 2008, in line with the company company’s capital spending last year.
Obviously, some of those billions will go to fixing BP’s well-documented problems at U.S. refineries, and on LNG. But it’s clear that Mr. Hayward is making a commitment to the oil sands that his predecessor never contemplated. And with this kind of acquisition budget, nothing in the Alberta oil sands is beyond Mr. Hayward’s reach.
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aldyen donnelly from Canada writes: If you look at BP's annual reports, you will notice that over the last 10 years, under Lord Browne's leadership, BP spent over $50 in new capital spending to expand global oil production and marketing capacity for every $1 invested in all of: natural gas reserve expansion, power production and alternative and renewable energy. Long before Lord Browne departed, BP's earnings had become much more dependent on petroleum product sales growth (not just price increases, but also sales volume increases) and the company was much less involved in lower carbon fuels than it was 10 years ago. Only one of last 10 years of annual reports actually breaks out BP's capital spending on alterative and renewable energy initiatives, and in that one year it amounted to less than $0.30 of the dollar spent developing all other-than-oil energy products. The annual reports of most major Canadian oil and gas companies--including Husky Oil and Suncor--exhibit better environmental/alternative energy-to-traditional oil spending ratios than BP has exhibited. Maybe BP will learn something from Husky in this new partnership. Lord Browne was one of the world's most capable PR men, but "Beyond Petroleum" was not reflected in the actual investment strategy Browne implemented. Apparently the UK parliament is okay with that. Under Britain's CO2 cap and trade rule, BP receives, gratis, slightly more free CO2 quota than the company requires to continue to grow its UK GHG emissions on an unconstrained basis. (100% of the cost of Britain's cap and trade programme is born by electricity rate-payers, by government design, and all fossil fuel producers and large industry are allowed to grow emissions on a "Business as Usual" basis. This is explained in clear language in Britain's official Climate Change National Action Plan.) I actually admire BP's new CEO enormously, for both (1) telling it like it is and (2) actually committing more capital to alternative energy than his predecessor ever did.
- Posted 23/02/08 at 3:29 PM EDT | Alert an Editor | Link to Comment
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