BP's announcement of record profits masks major flaws in the company's long term investment strategy, according to analysts at Greenpeace and PLATFORM.
Strong growth recorded in the first half of 2008 was undermined by a collapse in profits during the final quarter, indicating a vulnerability to oil price fluctuations which will continue while BP remains wedded to an “oil at any cost” strategy.
Analysts from both groups criticised the company for its investment decisions which they claim have failed to take a new political, environmental and regulatory climate into account.
In March 2008 BP finalised its $5.8bn investment in the Sunrise tar sands project in Alberta, Canada. Since then the future of the tar sands industry has been thrown into question as oil prices fell below the breakeven point of most tar sands projects, and a new era of clean energy legislation has been proposed by the Obama administration.
Reacting to the news, Greenpeace chief climate advisor Charlie Kronick said:
"These results prove that BP's investment decisions are going in the wrong direction. The Canadian tar sands project is a clear threat to investors, while the alternative energy division has been left to wither on the vine despite the urgency of climate change."
Whilst James Marriott, Partner of PLATFORM said:
"The company is wedded to a 20th century business model which is simply not flexible enough to cope with the twin challenges of global climate change and increasingly remote oil reserves. Shareholder returns are bound to fall as the political, environmental and regulatory climate changes dramatically over the next few years."
Last week the head of the Sunrise field, Catherine Hughes, resigned her post amid rumours of a delay in the project, and BP's annual results confirm that production has been put back until 2013. Since October 2008, dozens of tar sands projects have been put on hold, including three major projects proposed by BP’s main rival Shell.
Rumours of the Sunrise project being scrapped remain unconfirmed, but as a high cost SAGD (1) investment it appears unlikely that it will go ahead as originally planned. BP spent $250 million on the project during the 2008 financial year, and is committed to a total spend of over $2.5 billion over 4-5 years.
CEO Tony Hayward told investors at Davos that "The price needed today to stimulate investment into that [oil sand] resource is of the order of $60 to $80 a barrel." Oil currently languishes at $40 per barrel and this price remains highly volatile.
The results also reveal the disastrous performance of BP’s Alternative Energy division, which lost $633m over the past year. Greenpeace points out that despite axing staff and pulling investment from the division, BP has continued to spend heavily on a worldwide advertising campaign which gives the false impression that alternative energy represents a core part of the company’s business. (2)
In fact, the company diverted 93% of its 2008 capital expenditure towards oil and gas extraction, compared with just 1.3% on solar energy, 2.6% on wind and a similar amount on biofuels (3). The head of BP’s alternative energy decision recently admitted that “limits on capital spending in the existing portfolio” had been imposed on clean energy projects. (4)
For more information please contact the Greenpeace press office on 0207 865 8255
Or PLATFORM on 0207 403 3738
Footnotes
(1) SAGD is Steam Assisted Gravity Drainage, a highly energy intensive and therefore expensive method of extracting bitumen from the deeper deposits in Alberta’s tar sands belt. It involves injecting steam into the reservoir to heat the bitumen so it can be pumped to the surface.
(2) One of BP's more notable adverts claims the company works with "the earth, the sun and everything in between." Another states that "the best way out of the energy mix is an energy fix." See "BP wins coveted emerald paintbrush award" for more details.
(3)http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/I/IC_bp_strategy_presentation_2008_slides.pdf
(4) http://www.guardian.co.uk/business/2009/jan/20/bp-oil-green-energy
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