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San Jose Mercury News: BP hints that it may offload green business

Associated Press
Article Launched: 02/27/2008 09:59:19 AM PST

LONDON – BP PLC Chief Executive Tony Hayward hinted on Wednesday that the oil company may offload part or all of its green business unit, reversing a central part of its previous strategy as he seeks to turn the company around.

Hayward, giving his first annual presentation to analysts since taking over from former CEO John Browne last May, also said that BP could be producing some 4.3 million barrels of oil equivalent a day by 2012.

BP intends to expand its Alternative Energy business “predominantly for its equity value,” Hayward said.

The green unit, much prized by Browne, is worth between $5 billion and $7 billion, based on market valuations for similar companies, Hayward said.

“As we go forward we will be looking at how best we can realize that growing value for our shareholders,” he said in comments provided to the London Stock Exchange from the briefing.

Selling all or part of the business would drop a key plank of Browne’s strategy, the rebranding of the former British Petroleum under the “Beyond Petroleum” slogan.

BP’s advertising has focused heavily on the company’s green investments, but environmental campaigners have long argued that it was little more than a marketing gimmick.

Hayward said the company was making good progress with a restructuring plan that is aimed at improving BP’s dismal operational performance after a turbulent year in which it was fined millions of pounds for environmental crimes and fraud.

BP has already begun cost-cutting and restructuring, including shedding 5,000 jobs, as it seeks to close the gap with rivals like Royal Dutch Shell PLC and Exxon Mobil Inc. caused by poor performance in BP’s refining and marketing business.

Iain Conn, chief executive of that division, estimated that gap at $3.5 billion to $4 billion a year, assuming an average refining margin of $7.50 a barrel.

Conn said plans were in place to reduce that by nearly half by the end of 2009, chiefly from restoring and upgrading BP’s refineries, including the one in Texas City, Texas, where an explosion killed 15 workers in 2005. Conn said the remaining distillation capacity at Texas City would be back on stream in the coming weeks and most of the margin capability would be in place in the second quarter.

Hayward added that the company could sustain production of at least 4 million barrels a day until 2020, even with no new discoveries or access to new opportunities, assuming a crude oil price of around $60.

“However, bearing in mind a rise in exploration spend to nearly $1 billion this year together with significant additions of fresh acreage in established areas such as the deepwater Gulf of Mexico and a continuing drive to access new provinces around the world, we expect to do better than this,” he said.

Crude prices have been trading far above that level, and on Wednesday spiked above $102 a barrel for the first time as a weak dollar and U.S. economic worries drove more money into energy futures as a hedge against inflation.

BP said it replaced its annual production by 112 percent in 2007, taking its proved reserves of oil and gas to 17.8 billion barrels. It also added some 2.4 billion new barrels to its non-proved resource base, which now stands at a further 42.1 billion barrels of oil equivalent.

Exploration & Production chief executive Andy Inglis estimated upstream spending this year at $15 billion, or $17.5 billion including BP’s share of spending by TNK-BP and Pan American.

Inglis said BP expected to bring more than 25 new projects on stream between 2007 and 2009. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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