BP Imperial Oil and Offshore Wind
There has been much noise recently about BP moving into offshore wind with Equinor for the New York concession area (Ref. 1). The Empire and Beacon wind strategic partnership buy in of $ 1.1 B is about 7% of BP annual CAPEX expenditure, effectively spread over the concession term. At least they have started, but it is worth remembering that BP remains at it’s core an oil company, whose major oil assets are no longer in the UK North Sea and Alaska.
The Market Capitalisation value of BP has plunged in recent times, falling below that of Danish company Ørsted In 2012 was still known as Danish Oil and Natural Gas (Dong) producing just 0.2 mboed, having peaked a decade earlier at 0.39 mboed*1. By 2017 Dong had sold its last oil and gas assets to U.K. firm Ineos and assumed the name of the Danish discoverer of electromagnetism, Hans Christian Ørsted.
Ørsted is now the largest offshore wind developer in the world, with 6.8 GW and 1 GW of onshore wind and by 2025 will be carbon-neutral In 2019 those 7.8 GW provided $1.3 billion of profit, which compares with a $12.7 billion BP profit in 2018 from Oil & Gas (Ref. 2). [*1 mboed = Million barrels of oil equivalent per day]
Roughly 30–35% of BP oil production comes from a substantial 20% ownership stake in Rosneft (Ref. 3), something they tend to like to keep quiet. It is not until the end of BP’s Q3 2020 report (Ref. 4) that the reader arrives at a small plot showing that Rosneft production is about 1.2 mboed, but this is barely mentioned throughout the report.
That proportion will inevitably rise should the signs of the intended driving up of the oil price by KSR/RU succeed in the near future along with a recently apparent “Natural Gas Cartel” (Ref. 5) joint intent to perhaps welcome an increase in gas prices “at some stage in the future”.
To be fair, BP probably unintentionally backed itself into a strategic corner by sticking with Rosneft and being in a position in Azerbaijan (ACG and Shah Deniz) it could hardly back out of as the Americans and Norwegians did some years ago. This is part of the Thatcher/Browne South Caspian legacy dating back to the dreaming expansionist 1980s so can hardly be put down to current management.
The Baku-Tbilisi-Ceyhan [BTC] pipeline (Ref. 6) has supplied 0.7 mboed from Baku to Ceyhan on the Turkish on average since opening up in 2006. It is likely that BP will have 1.7 to 2.0 mboed running across Russia and Azerbaijan for some years to come. Baku jumps when Rosneft/Moscow say so, if the cash is right, about half of BP oil production. That proportion is likely to rise beyond 2020.
In addition, BP is a major producer in countries such as Iraq, where it operates the world’s third-largest oil field, Rumaila in southern Iraq, plus small oil interests in UAE (Ref. 7). BP is clearly focusing on low-cost oil, whilst attempting to boost natural gas output. Oil production at Rumaila is of the order of 1.4 to 1.5 mboed, with output cut to enable Iraq to comply with OPEC quotas agreed in April 2020. Capacity decline would be to 1 to 1.2 mboed without adding wells, maintaining pressure and use of water separation. BP and the Iraqi government do not have a timeline for reaching planned peak-production level of 2.1 mboed, but field capacity will probably eventually be increased to 1.7 mboed.
To summarise, almost 8–90% of BP group oil production of ~3.6 mboed is sourced from Russia (1.2) and Azerbaijan (0.7) and Iraq (1.4) mboed BP group oil production as airlines and IC vehicles disappear over the medium to long term is of course an unknown but could reduce to 2.0–2.2 mboed, with some suggesting a figure as low as 1.5 mboed by 2030 down from ~3.5 mboed at present.
BP are a little late getting into offshore wind and too lightweight on natural gas compared to rivals Shell. The suspicions exist of excess greenwash and propaganda. BP plans suggest they have no intention at least at present of reducing annual development expenditure below GBP 14–16 Billion. Their importance to the UK’s balance of payments is such that there remain plenty of lobbyists, PR men and shareholder groups in the City of London and in the large pension funds who continue to support that strategy, but the company is too much driven by City of London short -termists and those demanding pension funds.
References
1. Equinor (2020), “Equinor Partners with BP in US Offshore Wind to Capture Value and Create Platform for Growth”, 10th September 2020.
www.equinor.com/en/news/2020-09-offshore-wind.html
2. Greentech Media (2020), “What BP Can Learn From Orsted: The Route to Low-Carbon Profits”, 14th February 2020.
www.greentechmedia.com/articles/read/what-bp-can-learn-from-orsted
3. BP (2015), “Rosneft and BP Sign Production, Exploration and Refining Agreements”, 19th June 2015.
4. BP (2020), “Q3 Quarterly Results”
www.bp.com/en/global/corporate/investors/results-and-reporting/quarterly-results-and-webcast.html
5. Mind the Gap: Geostrategy of Natural Gas
affiliate-network.co/2019/12/strategy-of-natural-gas/
6. European Bank for Reconsruction and Development “Baku-Tbilisi-Ceyhan (BTC) Pipeline
www.ebrd.com/work-with-us/projects/esia/baku-tbilisi-ceyhan-(btc)-pipeline.html
7. World Oil (2020), “BP Investing in Middle East Oil While Pledging a renewables Shift”, 27th November 2020.
www.worldoil.com//news/2020/11/27/bp-investing-in-middle-east-oil-while-pledging-a-renewables-shift
