Image source: BP.
If we were to compare BP's recent conference call to a boxing match, then CEO Bob Dudley came out swinging. Many investors and analysts were starting to question the company's ability to extract profits from its production in a low-price environment and its ability to grow while cutting back capital spending. So management really went out of its way to explain its plans for both the short and the long term following its most recent earnings release. These five quotes below give a pretty good idea of what Dudley wanted to get across to the company's shareholders.
Continue Reading Below
When we say "lower for longer," we really mean itWe have seen energy executives across the industry say that they don't expect the oil market to significantly recover until late 2016 and possibly 2017. According to Dudley, that may even be an optimistic outlook. He has been preparing his company for the possibility that oil prices may not recover significantly until the next decade:
Getting back to profitabilityWhile $80 per barrel would be a dream right now, that doesn't really help projects that are coming online today. Fortunately for BP, several of the projects it has coming online in the coming months should be profitable at much lower prices.
BP is in the middle of the pack among its big oil peers right now when it comes to maintaining profitability from the production side of the business. It hasn't been able to weather the storm like Total (NYSE: TOT) has in recent quarters, but at least its upstream segment has remained profitable.
Data source: Company earnings releases. Earnings in millions of U.S. dollars.
If these new projects pan out like Dudley claims, then perhaps BP can improve its upstream profitability.
Greater opportunities further down the pipeAnother thing that Mr. Dudley wanted to make clear was that the company was going to be much more scrupulous when to came to making final investment decisions for new projects.
This is a good sign, because up until recently BP was assessing its projects based on an oil price of $80 Brent and a "stress test" of $60, which put them on the high range for price assumptions compared to several of its peers.
Data source: Company investor presentations.
We still have some strong production growth coming with lower spending ...BP and many of its peers have been saying they plan to significantly cut capital spending over the next few years to adjust for current oil prices and the fact that many major projects have come to a close. That has some investors slightly concerned BP isn't planning to spend enough to grow production. To get out ahead of this, Dudley went into detail about several of its major projects and how much that will add to the production portfolio of the company:
Clearly there are plenty of projects to work on in the coming years, but it depends largely on how BP can execute on those projects and bring them online within budget.
... and a very large resource base from which to drawThe other concern about lower spending is that the company may not do enough exploration work to replace its production with new reserves. While the company acknowledges that it may not replace all of its reserves, Dudley pointed out that BP has a pretty deep bench of potential resources to draw from before that becomes a huge concern.
Investors should be willing to give BP and other integrated majors some slack when it comes to replacing reserves in the coming years. If it persists for several years, though, then it may be time to get concerned.
The article BP's CEO Took On Investors' Fears With Full Force During Its Recent Conference Call originally appeared on Fool.com.
Tyler Croweowns shares of ExxonMobil.You can follow him at Fool.comor on Twitter@TylerCroweFool.The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Chevron and Total (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.