BP Replaced 121% of Reserves Last Year as Oil, Gas Output Rose

By Eduard Gismatullin

March 3 (Bloomberg) -- BP Plc, Europe’s second-largest oil company, replaced 121 percent of reserves in 2008 after crude and natural-gas production rose for the first time in three years.

Excluding acquisitions and divestments, BP added 1.7 billion barrels of new oil and gas to reserves, the London-based company said today in a statement distributed by the Regulatory News Service. Output climbed 0.5 percent to 3.838 million barrels a day last year, BP said Feb. 3.

The gain follows three major discoveries in Egypt, Algeria and the Gulf of Mexico last year, which each boosted resources by more than 250 million barrels of oil equivalent, according to Andy Inglis, BP’s head of exploration and production. Oil companies worldwide reported about 14 major finds in 2008.

“It’s been our best year this decade” for exploration, Inglis said in an online podcast last month. Reserves were replaced for the 15th year, demonstrating “the strength of the BP portfolio,” he said.

BP held 18.2 billion barrels of oil and gas reserves and 43.4 billion barrels of resources as of the end of 2008, according to today’s statement. It held a total of 61.6 billion barrels of oil equivalent of combined reserves and non-proved resources, sufficient for 43 years of production at the same rates as last year.

The company reiterated its plan to raise output through 2020. Last year, it said it expected to pump more than 4 million barrels a day in 2009 and about 4.3 million barrels a day in 2012. The company is targeting production of at least 4 million barrels a day until 2020 from booked reserves.

Refining Gap

BP plans to increase refining and marketing profit as it seeks to close the gap with Royal Dutch Shell Plc, Europe’s biggest oil company, and Exxon Mobil Corp. A year ago, the U.K. producer said 2007 refining earnings before tax fell short of competitors’ results by an estimated $3.5 billion to $4 billion. It recouped about half that amount last year.

BP may be “completely back performing in line with our super-major competitors” by the end of this year, Iain Conn, who heads the refining and marketing business, said on the podcast last month.

The company will be able to maintain investments and pay dividends with oil prices below $50 or $60 a barrel as production rises, refining throughput increases and costs fall, Chief Executive Officer Tony Hayward said on the podcast. “If I look at BP today we are cash balanced,” he said.

Oil Plunge

Crude traded in New York has dropped about 72 percent since reaching a record $147.27 a barrel in July. Oil for April delivery rose as much as 2.2 percent today to $41.05 a barrel.

BP reported its first quarterly loss in seven years last month and predicted demand for crude will continue to fall in 2009 as the global recession deepens.

The producer was cut to “market-perform” from “outperform” at Sanford C. Bernstein & Co. today because of production concerns.

BP sank as much as 4.1 percent to 405.5 pence in London trading. The stock was at 410.25 pence as of 1:13 p.m. local time, extending its decline this year to 21 percent.

BP gradually restored operations at its Texas City refinery last year after shutting the plant before Hurricane Rita in September 2005, eight months after an explosion that killed 15 workers. The company’s facility in Whiting, Indiana, has raised output since a fire in April 2007 halted operations.

The producer plans to cut supply and field-service costs, which have doubled since 2004 following record oil prices.

“I’m going to optimize the supply chain, in particular where we see a deflating cost rate,” Inglis said. “We need to ensure that every dollar of capital we spend in ‘09 is targeted at projects which are truly ready for execution.”

Last year, BP based its earnings-gap estimates on the Global Indicator Margin, a broad measure of refining profitability, at $7.50 a barrel.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net