BP BP Plc

By Sarah Kent 

LONDON -- BP PLC on Tuesday laid out plans to drive its break-even oil price down to $35 to $40 a barrel by 2021, asserting that it can grow again and keep a lid on spending despite a massive bill from its Gulf of Mexico disaster six years ago.

In a strategic update that detailed the company's plans for the next five years, the British oil giant said it expects to increase production by an average of 5% a year from 2016 to 2021 without expanding its capital budget above its current $17 billion ceiling.

By 2021, the company expects its exploration and production unit to generate free cash flow of $13 billion to $14 billion at oil prices around current levels, above $55 a barrel on the ICE futures exchange recently. This year the company expects to need oil prices at $60 a barrel just to break even.

"You have a company that is getting back to growth--growth today, growth in the medium term, and growth over the very long term," Chief Executive Bob Dudley told investors.

It is a narrative the company is emphasizing after years spent retrenching following its fatal 2010 blowout in the Gulf of Mexico, coupled with a dramatic decline in oil prices since 2014. It remains burdened by the fallout from the disaster in the Gulf, which killed 11 workers, spewed millions of barrels of oil into the ocean and has already cost nearly $63 billion.

Over the past six years, BP has sold off roughly $75 billion worth of assets, slashed spending and worked to bring down costs to cope with the dual challenges of its Gulf of Mexico liabilities and slumping oil prices.

Management said those changes and progress still to come leave the company well positioned to grow and compete in a challenging market. The company said it expects a future in which oil supply is abundant even as demand for cleaner energy sources is expected to increase, though it expects oil demand to continue to grow out to 2035.

The company's new oil-price break-even goal of $35 to $40 a barrel contrasts with its current predicament. BP said in early February that it had to raise its break-even oil price to $60 a barrel, and Jefferies, the investment bank, says it is actually higher than $69 a barrel, the highest among the big Western oil companies.

According to Jefferies, Royal Dutch Shell PLC, Exxon Mobil Corp. and Chevron Corp can all break even this year at under $50 a barrel.

"We're building a company that is competitive in a low-price environment, " Mr. Dudley said. "We want to be invested in the best projects in the best basins."

Capital discipline and rigorous cost efficiency remain company buzzwords.

BP says new projects now through 2020 are expected to generate 35% more cash than the average BP development just two years ago. Its refining and marketing arm is targeting returns of around 20% by 2021 and free-cash-flow generation of $9 billion to $10 billion.

More than 200,000 barrels a day of additional oil and gas production is expected by the end of the decade from recent acquisitions -- primarily a long-term interest in low-cost oil in Abu Dhabi -- that top BP executive Bernard Looney described as "not-to-be-missed" opportunities.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

February 28, 2017 14:01 ET (19:01 GMT)

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