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Abu Dhabi, UAEWednesday 19 December 2018

BP's quiet American Bob Dudley remains a study in resilience

Chief executive steering the oil major firmly on track for growth talks exclusively to Mustafa Alrawi

BP's chief executive Bob Dudley. Pat Sullivan / AP Photo
BP's chief executive Bob Dudley. Pat Sullivan / AP Photo

"The quiet American" – to steal a phrase from Graham Greene – has been used to describe Bob Dudley, the chief executive of BP. Resilient might be nearer the mark, however.

The 61-year old has successfully overcome all of the major challenges that have come his way during a career in the energy industry that began back in 1979.

Currently, he is at the helm of a fast-growing and focused global energy company, producing 3.3 million barrels of oil equivalent per day – on a par with the world’s eighth largest producer the UAE – and employing 75,000 people in 72 countries. Today’s state of affairs seemed improbable when he took over as chief executive in the wake of the Deepwater Horizon disaster in 2010 – which threatened to destroy BP and very nearly did, costing it an estimated US$62 billion.

That was almost seven years ago and Mr Dudley promised then not to underestimate the task of putting the company back on the road to recovery – his predecessor Tony Hayward had just been swallowed up by the fallout from the spill in the Gulf of Mexico.

Today, BP, across its upstream, downstream, alternative energy and trading operations, is distinctly in a growth phase, with Mr Dudley having, as he said he would, steered it through the reputational battering it was subjected to into a position ahead of the curve even amid what its competitors have found to be a difficult period marked by stubbornly low oil prices.

Benchmark Brent crude averaged $44 per barrel last year, down from $52 per barrel in 2015, and the lowest annual average price since 2004.

“I think we are now stronger and more focused – competitive, as we have to be, but also fit for a future which is changing ever-faster. After this period of reshaping, we are now getting back to growth,” Mr Dudley says in exclusive remarks to The National.

“Very importantly, we aren’t pursuing growth for growth’s sake, we are keeping our discipline and focus on creating value.”

Mr Dudley, who has been with BP since its merger with Amoco in 1998 – the largest ever oil industry combination at the time – identified earlier than some that the oil price might be “lower for longer”.

And amid data to the contrary, he has been saying for some months now that in terms of daily supply and demand, the oil market has largely rebalanced.

Yet he concedes that it will still take time to work through the inventory overhang that has built up.

“How this will equate to the oil price remains uncertain. We will probably see prices in the current range for a period of time until stocks are drawn down,” he says. According to BP’s statistical review, released last month, global oil consumption rose by 1.6 million bpd in 2016, above the 10-year average rate for a second consecutive year, led by India with an increase of 300,000 bpd and Europe also up 300,000 bpd. China demand was up 400,000 bpd, although this was a smaller increase than in recent years. Against this was higher Opec production of 1.2 million bpd last year. While the current output restraint strategy, aimed at eating away at the supply glut faster, that was put in place by Opec and its partners, including Russia, will result in a fall in production on their part, last year had also been marked by a drop in US production thanks to the lower oil price making shale – or tight – oil less viable. With Brent’s average in the first part of this year above $50 per barrel, US production has come back, blunting the effectiveness of Opec’s efforts.

Mr Dudley says that US tight oil is here to stay as an important shock absorber in global oil markets, dampening price volatility on both the downside and the upside.

“Alongside Opec, the performance of the US tight oil sector has been one of the factors that has dominated the oil market since the price collapse in 2014. As the market now moves into balance, we’re seeing that the short-cycle nature of onshore drilling and fracking has meant US tight oil can respond more quickly to price signals than global conventional oil,” he says.

Overall, global energy demand growth has been sluggish – rising at a rate of 1 per cent in 2016 compared to the 10-year average of 1.8 per cent – as OECD countries registered little change last year.

The long-term outlook is more bullish according to BP, however. Over the next two decades the company forecasts that global demand for energy will grow by about 30 per cent, with virtually all the growth coming from fast-growing developing economies, particularly China and India. Last year, together they accounted for half of all global growth. Indian energy demand grew by 5.4 per cent and China demand was 1.3 per cent higher. While China's rate of growth much lower than it has been historically, it still made it the world’s largest growth market for the 16th year in a row, according to BP.

“BP is present in both these countries and is seeking further opportunities, working very closely with strong national partners,” says Mr Dudley. “Our Chinese presence continues to evolve.”

It has a close relationship with CNPC, both within China, where there are a number of projects including one exploring for shale gas, and in other markets such as Iraq, where they are working together in the Rumaila field in the south of the country.

Last month, BP and its Indian strategic partner Reliance Industries approved the development of deep-water gasfields offshore of the east coast.

Expanding its gas business is a core part of BP’s overall growth strategy, according to Mr Dudley.

“Over the next five years we expect material growth in operating cash flows from both of BP’s major operating segments. In the upstream, we expect this to be driven by an ongoing series of major higher-margin project start-ups - focused on gas and advantaged oil,” he says.

By the middle of the next decade around 60 per cent of BP’s production will be gas, compared with around 50 per cent currently. Six of the seven major upstream projects it is scheduled to bring onstream this year are gas projects – including the first phase of the Khazzan project in Oman.

Last year, BP also renewed its involvement in Abu Dhabi’s lucrative onshore oil concessions which account for about half the emirate’s daily output of about 3.1 million bpd. The original concession rights agreement had run for 75-years before expiring at the end of 2013.

The deal securing BP’s involvement in December was innovative with the Abu Dhabi National Oil Company agreeing to a $2.2bn share swap, the latter taking a 2 per cent stake in the London-based oil major in exchange for a 10 per cent award in the company operating the assets, Adco.

“In terms of its structure, I see it as a win-win for both parties. BP has chosen to be a partner and an asset lead for very material and cost-competitive oil resources, while Adnoc has become an important strategic shareholder in BP. I believe this is an innovative and historically significant deal that benefits both companies,” says Mr Dudley.

He also says that the company is open to any new opportunities to build on its relationship with Adnoc.

As reported in The National on Monday, Adnoc plans to more actively manage its portfolio of assets and form new partnerships across all areas of the group including for the first time in drilling and midstream infrastructure.

“BP is committed to Abu Dhabi for the long term. We’ll carefully look at options to deepen and broaden our partnership in opportunities that fit with our strategy and can deliver value for both BP and Abu Dhabi,” he says.

Adnoc’s new approach also includes the potential IPOs of select services businesses.

“From what I know, I believe this is a positive way forward for Adnoc, the region, and the industry. It is a model that has been proven in other parts of the world by creating competition in the supply chain, attracting new investment opportunities, and bringing more advanced technology to Abu Dhabi,” he says.

Mr Dudley's resilient streak tends to come to the fore with regards to maintaining a presence in BP’s key markets.

In the mid-1990s, he worked on corporate development in Russia. Then after the Amoco-BP merger, he was responsible for operations in Russia and in 2003 was made chief executive of TNK-BP, the joint venture that ended in public acrimony. In mid-2008, Mr Dudley was forced to leave Russia as the consequence of a fierce power struggle with local partners that resulted in the company being put into Russian control and led eventually to the sale of BP’s stake to Rosneft in 2012.

In Russia, Mr Dudley showed his usual deft handling of a challenging situation – even more so because of the personal toll it took on him – as he used the deal with Rosneft to turn things around for BP there. The exit from the TNK JV gave BP a significant stake in Rosneft that made it the largest foreign investor in Russia.

Building on the 18.5 per cent shareholding in Russia’s largest oil company, BP has been extending the relationship through direct investment projects.

“Russia is one of the largest and lowest cost hydrocarbon resource basins in the world and BP has a long and profitable history of working in Russia,” he says. “We continue to see our involvement in Russia as offering long-term value for BP shareholders.”

There have been several deals signed between BP and Rosneft since 2012 including last month, for example, when they agreed to co-operation on the sale and purchase of natural gas in Europe.