BP PLC (BP) said Tuesday focus on improving the profitability of its refining operations over the next two to three years in an effort to boost the company's annual underlying pretax profit by more than $3 billion.
The U.K. energy giant is striving to carry forward the momentum from a successful restructuring program that cut cash costs more than $2.4 billion in 2009 and made it the best performing major oil company last quarter.
"While our portfolio ranks amongst the best in the industry, our financial performance has yet to reflect this," said BP Chief Executive Tony Hayward. "Our direction is clear: the unrelenting pursuit of competitive leadership in respect of capital costs, capital efficiency and margin quality."
The bulk of the improvement is being targeted at BP's refining and marketing segment. BP aims to have boosted the unit's underlying pretax profit by $2 billion within two or three years, from a base of $3.6 billion in 2009.
The push for cost efficiency in refining will be heavily focused on the U.S. and achieved through better planning and execution, improved contractor management and lower cost sourcing of goods and services, said BP's refining Chief Iain Conn.
The global refining business has just gone through its toughest period in decades, with many companies posting big losses last quarter, but Hayward said BP's larger, more advanced refineries are well placed to weather these conditions.
The remaining improvement in profitability is being targeted at BP's upstream division. BP's spend on major oil and gas projects over the last five years has been on average 20% above the company's estimate at the time of sanction, said BP's upstream chief Andy Inglis. BP could save $700 million a year through better project management and $500 million a year by improving the efficiency of its drilling operations, he said.
BP reiterated its target to grow oil and gas output by between 1% and 2% a year to 2015 and said it has increased confidence of being able to maintain this growth to 2020. The key drivers of growth beyond 2015 will be deep water fields in the Gulf of Mexico, unconventional gas, and from increasing output from giant oil fields in places like Iraq and Russia, BP said.
Technological advances in areas like seismic surveys, subsea well intervention and unconventional oil and gas could add an extra 10 billion barrels of oil equivalent of reserves from existing discoveries, Inglis said. Applying technology like this to Iraq's Rumaila oil field, could make it the second most productive field in the world by 2015, he said.
BP and China National Petroleum Corp. have pledged to almost triple production at Rumaila to 2.85 million barrels a day. The companies will receive a fixed fee of $2 for each additional barrel of oil produced from Rumaila above the current level of 1.07 million barrels a day.
BP's total capital expenditure in 2010 will be unchanged from the previous year at around $20 billion.
At 1605 GMT BP shares were up 0.7%, or 4 pence, at 600p.