BP Gains Further Access to Indonesian Deepwater as Stock Reaches for $55
Last week BP (NYSE:BP) announced that it had been awarded two oil and gas production sharing contracts (PSCs) by the Government of Indonesia. The contracts cover an off-shore area of approximately 16,400 square kilometers with water depths ranging from 200 meters to 2,500 meters. These two new blocks add to BP’s existing portfolio of projects in Indonesia, which include four coal bed methane production contracts in Kalimantan and three conventional gas blocks in Papua. [1] BP expects to commence offshore seismic operations in the new PSC blocks in the near future. The contract gains represent a small step in BP’s plan to double its spend on global exploration over the next few years, as the oil giant continues to seek out new production opportunities. [2] With a decline in production reported across the industry, reserves replacement is a key issue for BP and its major competitors such as Chevron (CVX), Shell (RDS.A) and ExxonMobil (XOM).
Oil Prices Have Offset Production Declines
While the high oil prices of 2011 have boosted BP’s returns, production levels have been significantly down on prior year. Earnings before interest and tax for its Exploration and Production segment remained flat for the nine months to September 2011. However, oil production decreased by 10% and natural gas production decreased by 12% in the same period. While slower activity in the Gulf of Mexico accounts for a significant proportion of the reduction, production was down in all regions except for Russia. [3] As at December 2010 BP’s proved reserves stood at 18,071 mmboe, a 1% decrease on the prior year. The reserves replacement ratio was 106%, down considerably from the 129% achieved in 2009. [4]
With oil prices high, global energy demand set to increase in the medium- to long-term and existing conventional reserves declining, the discovery of new production opportunities is a key focus for oil majors.
The Trefis stock price estimate of $55 assumes that BP is able to maintain its current level of liquids production over the next few years. Future production levels depend on the company’s ability to successfuly compete for access to investment opportunities. BP appears to be performing well in this regard. Including the two new Indonesian awards, BP has gained access to 69 new licence blocks in 11 countries around the world since 2010.
You can drag the trend lines in the modifiable chart above to see the impact of production trends on BP’s stock value.
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Notes:- BP Awarded Two Exploration Blocks in Indonesia, Company Press Release [↩]
- Dudley Sets Out Priorities for Stronger, Safer BP, Company Press Release [↩]
- Company Filing [↩]
- Company Filing [↩]