Spectres loom for booming BP

Despite admiration for BP and Browne, these are not easy times for either. Last year the company’s reputation for safety was hit by an explosion at its Texas City refinery. Along with the reputational damage, the incident wiped $700m off BP’s profits. There have been oil spillages and more recently BP has been accused by the US Commodity Futures Trading Commission that its traders tried to corner the propane gas market.

Perhaps most significantly, last week Browne admitted that production fell for the fourth quarter in a row, down 2.5 per cent on a year ago. Questions over where future production would come from began the erosion of confidence in BP in the 1990s. The company is transformed, but, as Browne prepares to step down (he reaches the company retirement age in spring 2008), the questions are beginning to reappear.
..Meanwhile, BP pushes forward operations in Azerbaijan, Algeria and Indonesia and looks to extend its position in Russia via further exploration with TNK and a joint venture with Rosneft on Sakhalin Island where it claims ’significant future potential’.

Nevertheless, as Neil McMahon at Sanford Bernstein wrote recently: ‘Russia is simply not enough.’ The TNK deal reversed a production decline from 2003, while Thunder Horse in the Mexican Gulf and Kizomba off Angola will keep production up for another five years. But BP production falls from some 4.5 million barrels per day in 2010 back to 4 million barrels per day by 2020.

McMahon notes that in the Mexican Gulf , projects are becoming more challenging. He adds that Russian discontent with Western majors poses questions over projects there. By contrast, Shell and Exxon, the largest of the three, peak later, though they see fall-offs by 2020.

Observer