BP to Boost U.S. Investment after Tax Reform

British oil and gas giant BP will increase investments in the United States, Chief Executive Officer Bob Dudley announced on Tuesday.

Dudley, himself a U.S. citizen, cited the lowering of tax rates under President Donald Trump. “It is important for us; there is no doubt we will increase investments,” he said. “The regulatory system in the United States is suddenly so much easier. It was becoming an avalanche of regulations in every direction.”

Dudley spoke in an analyst call after BP reported a surge in profits in 2017.

“From a business community stand point this is quite transformational,” he added. “There will be a lot of capital attracted to the U.S. because of that.”

BP invested $90 billion in the United States over the past ten years, (excluding the $65 billion as a result of the 2010 Deepwater Horizon spill) making it the country’s biggest investor in the energy sector. The energy giant took a one-off charge of $900 million in the fourth quarter of 2017 to adjust to the new U.S. tax rule. A long-term boost is expected from the corporate-friendly rates.

Powered by higher prices and output of gas and oil, BP saw profits more than double in 2017 to $6.2 billion (from $2.6 billion in 2016). The London-listed company had one of the strongest output increases in its own history with production levels not seen since the Deepwater Horizon disaster. With a fourth quarter 2017 bounce in oil prices to $61 a barrel; BP had surplus cash to resume share buybacks. The company bought $343 million worth of shares in the last quarter of 2017 offsetting scrip dilution. BP was the first of its peers in Europe to resume share buybacks.

“2017 was one of the strongest years in BP’s recent history,” Bob Dudley added. “We enter the second year of our five-year plan with real momentum, increasingly confident that we can continue to deliver growth.”

Full year production rose 12 percent to 2.47 million barrels per day after the 2017 launch of seven new BP gas and oil fields. The company plans to start six more projects in 2018 (up from the original five), including Azerbaijan, Egypt and the North Sea. BP added approximately one billion barrels of oil equivalent to its reserves in 2017(the largest addition since 2004). Its reserve replacement ratio was an estimated 143 percent for the year. The company’s refining and trading business saw profits go to $7 billion in 2017.

CEO Dudley also acknowledged that this industry is changing and BP intends to invest in clean energy as well. “It’s not a race to renewables; it’s a race to lower greenhouse gas emissions. As fast as renewables and clean energy can grow, faster than any fuel in history, the world is going to require oil and gas for decades to come,” he said.

BP recently bought a $200 million stake in Europe’s biggest solar developer, and is reported to be considering several other solar investments. Much of the company’s strategy update focuses on clean energy; BP said this would amount to approximately $0.5 billion of its $15-16 billion capital expenditure programs. BP plans to announce carbon targets (including one for methane gas) in the next two months.

Big oil companies have indicated a switch to green energy before. In the early 2000s, international oil companies seemed to respond to investor pressure and move away from crude.

Recently, Shell bought a car-charging network and one of Britain’s largest energy suppliers, and Norway’s state-owned oil company Statoil deployed the world’s first floating wind farm. In 2000, BP Chairman Sir John Browne announced ‘We are not an oil company’ and promised that BP would stand for Beyond Petroleum. BP closed its alternative energy HQ and Shell stopped investing in wind and solar. However, perceptive observers believe that this time oil companies are serious about the move beyond petroleum. Now, with electric cars, other clean technology, and a focus on renewables, forecasters can see a real threat to the gas and oil businesses.

The decision by BP to increase investments in the United States due to decreased taxes and regulations is welcome news to traditional gas/oil investors and those interested is supporting the transition to new energy sources.


Ethan Warrick
Wealth Authority

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