December 3, 2012 / 2:55 PM / in 5 years

CORRECTED-UPDATE 1-BP to be simpler, oilier as capex rises

(Corrects first bullet point and first and second paragraphs to
show the capital spending estimates are for the period
2014-2020, not the years to 2014.)
    * Capex to be $24-$27 billion per year 2014-2020
    * Reiterates cash flow forecast
    * To divest $2-$3 billion of assets per year

    By Andrew Callus
    LONDON, Dec 3 (Reuters) - BP sees a new future for
itself as a "simpler" and "oilier" oil and gas company as it
raises capital spending in the years 2013 to 2020.
    In its first strategy update since striking a series of
deals aimed at getting its Russian and U.S. operations back on
track, the No.4 ranked company among western investor-owned oil
and gas groups told analysts it would raise capital spending,
excluding acquisitions, to between $24 and $27 billion a year in
the years 2014 to 2020 from an estimated $22 billion in 2012 and
$19.1 billion in 2011. Next year and in 2014, spending will
average between $24 billion and $25 billion, BP said.  
   This would be financed by higher cashflow from operations and
asset sales of between $2 billion and $3 billion a year. The
company reaffirmed a target it set at the start of the year to
increase operating cash flow by 50 percent by 2014 versus 2011. 
    Like all top investor-owned western oil firms, BP is
struggling to increase output and reserves in an era when
nations guard their resource wealth jealously, and spending ever
more billions of dollars to find new supplies and develop them.
    Unlike its peers though, BP has had some difficult recent
years in the United States and Russia - which contribute about
half the company's output. As a result, BP has undergone a
massive rearrangement of assets with total completed and planned
divestments of $65 billion - about half its total market value.
    "We have sold 50 percent of our upstream installations, one
third of our wells and half of our pipelines," Chief Executive
Bob Dudley said, "yet we have only lost 9 percent of our
production and 10 percent of our reserves. That makes us a
simpler company."
    Dudley also agreed the company was taking a route focused
more on oil and less on gas than some of its rivals. "There are
different strategies emerging," he said. BP is set to retreat in
the rankings of Liquefied Natural Gas producers over the coming
years, although in barrels of oil equivalent terms, its oil and
gas output levels are about equal to each other.
    In the United States, and particularly the Gulf of Mexico,
BP became a pariah after its 2010 oil spill there. Although BP's
U.S. offshore operations are back to pre-spill levels, last
month it pleaded guilty to criminal misconduct and added a $4.5
billion penalty to the $23 billion the disaster has cost it.
    Investors expect the settlement will allow the company to
move on, but last week the U.S. government used BP's criminal
status to ban it from new federal contracts over its "lack of
business integrity." 
    Also last week, BP avoided bidding for Gulf of Mexico
leases, raising a new question mark over its plans for a
province where it is the main deepwater leaseholder, and which
accounted for much of its output growth plans in past strategy
    In Russia, where BP is more heavily invested than rivals, BP
has had disagreements with its 50-50 partners in TNK-BP
, privately-owned AAR. BP has also pursued new Russian
projects with the increasingly dominant state sector in the form
of deals with government-owned Rosneft.
    In October and November, it finally struck a series of deals
that allows it to exit TNK-BP, acquire a stake in Rosneft, and
begin talks about such projects. 
    Rosneft board member Mikhail Kuzovlev gave a speech at
Monday's presentation in which he hailed its $55 billion dollar
deals to buy out both BP and AAR as "one of the largest energy
transactions in history." 
    Monday's strategy update comes hard on the heels of a Nov.
23 reorganisation of BP's oil and gas production management,
reversing a change it enacted after the spill. 
    The move puts Lamar McKay, currently head of BP's U.S.
operations, in charge of the upstream division, freeing up Chief
Executive Bob Dudley from close oversight of the day-to-day
operations he took over in the wake of the spill, which killed
11 men and spewed millions of barrels of crude into the sea.
    McKay, like Dudley, is a former executive from Amoco, the
company BP took over in 1997 to join the top tier of the

 (Editing by Mark Potter)
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