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A Leaner BP is Increasing Exploration in the Gulf

October 24, 2011 - 6:00pm

BP is a smaller company than it was before the Deepwater Horizon disaster off Floridas Gulf coast last year.

But with third-quarter net profits of $4.9 billion -- up $1.8 billion from the same period a year earlier -- and plans to shed up to $45 billion in assets in the next two years, BPs chief executive officer is telling investors the company is back at work.

Now heading a leaner company, BP Chief Executive Officer Bob Dudley, appearing on Bloomberg TV, said the company intends to more than double spending on exploration as it has acquired all its requested permits to drill in the Gulf of Mexico.

We are getting back to work in the Gulf of Mexico, Dudley said.

The company, which once pumped 4 million barrels of oil a day worldwide, now sees its focus in exploration, with the peak oil production at 3.4 million barrels a day by the end of the year, Dudley said.

People have worked very, very hard in the Gulf of Mexico, putting in place voluntary standards for drilling, he said. We have received all the permits that weve requested. Weve got three deep-water rigs running now, a fourth one very shortly. By the end of the year, well have five big rigs running.

David Mica of the Florida Petroleum Council said its a good sign that federal deep-water drilling permits are starting to be approved. But hed like to see the process speeded up.

There is a slowness of processing of permits that is still a problem, Mica said.

If you look to areas like the Dakotas, Pennsylvania and Ohio and Texas, where onshore development is moving forward gangbusters, you see the 'help wanted' sign rather than 'no vacancies' on a lot of employers and that is good news in a time when jobs are so important to the economy.

Dudley said the current month is seen by the company as a turnaround point in terms of getting finances and the public perception of the company on a sound footing.

I think our employees ... theyre tired but theyve done a great job this year and I think were starting to see some of the trust come back, Dudley said.I think we have done one of the biggest corporate responses to an accident in history.

BP, which has spent about $25 billion on damage control, has estimated the cost for the entire recovery, along with claims and fines, could reach $42 billion.

A trial is expected to begin in February in New Orleans to establish liability for the April 20, 2010, Deepwater Horizon catastrophe that left 11 dead and pumped 5 million barrels of crude into the Gulf.

Florida is not part of that suit. The state has until April 2013 to file its own lawsuit against BP. Florida officials must seek financial claims against BP under the Oil Pollution Act -- and those claims must be rejected -- before a lawsuit can be brought forward.

Members of Floridas Revenue Estimating Conference continue to calculate the impact of the spill on Floridas cities and counties.

Amy Baker, Floridas chief economist, said most of the revenue impacts wont be known until the first part of next year.

The big piece right now is adopting the economic forecast, the pre-oil spill and the post-oil spill economic forecast, Baker said. And well be able to use that to run all of our models and revenues.

Floridas focus is on government impacts. Currently, the state has reported $12 million combined in impacts from the spill, from areas such as the Escambia County School Board, $363,282; Mid Bay Bridge Authority in Okaloosa County, $407,094; the Bay Medical Center, $1.4 million; and Walton County, $2.4 million.

BP did receive good news last week when Anadarko Petroleum Corp., which had a 25 percent stake in the well, agreed to drop its allegations of negligence by BP.

We would welcome settlements from others involved, although were preparing very, very strongly and heavily for a trial, Dudley said.

In addition to BP, Transocean Ltd., which owned the rig, and Halliburton Co., which supplied cement for the work, are defendants.

The company has paid compensation claims of approximately $7 billion, out of a $20 billion fund the federal government required it to set up. The money, administered by the federal government, has been going to marine, hotel and tourism interests along the Gulf.

Dudley said because of the Anadarko settlement, which is worth $4 billion to BP, the company will meet the entire $20 billion obligation by the end of 2012, a year earlier than forecast.

BP (NYSE: BP), was selling for $43.50 Tuesday afternoon. In the weeks after the Deepwater Horizon spill, the stock fell from nearly $60 to $27.

The company remains a way off from its 2007 and 2008 performance, when the stock was selling as high as $78.

I think people were expecting some worse results this third quarter, I think thats a clue that the company is turning around and this month were having this operational turnaround, Dudley said. I hope in February were able to lay out our more strategic direction.

He said the company has 32 major exploration projects planned through 2016 that should add another 1 million barrels of production a day.

BP is good at finding oil and gas at scale," Dudley said. "Its very good at that.

Reach Jim Turner at or at (850) 727-0859 or (772) 215-9889.

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