BP’s results for the last quarter of 2010 were published yesterday, with the firm admitting that the total cost of the Deepwater Horizon spill will be about £26bn. This off the back of making a total loss of £3.1bn for last year, despite final quarter profits of £2.9bn (made mainly because of the high oil price).
Despite this news, BP has resumed payment of the quarterly dividend it pays to shareholders, now set at the princely sum of seven US cents a share. This is half what it paid out pre-Gulf of Mexico and works out at about £3bn less cash paid to shareholders each year. As the BBC’s Robert Peston points out, the huge costs of paying for Deepwater Horizon will mean dividends could remain flat over the next 10 years, costing investors and pension holders somewhere in the region of £40bn.
New BP boss Bob Dudley also outlined the future strategy for the company post-Gulf of Mexico. It's the first indication of what, if anything, they’ve learned from the catastrophe and whether there is any chance of BP even attempting to go “beyond petroleum".
Unsurprisingly, first impressions are not good.
Though BP is selling half of its US refining capacity, including the Texas City plant that exploded in 2005, killing 15 workers (and where subsequent investigations found over 300 safety violations at the site resulting in BP being fined £21m), there is a renewed focus on finding and developing new sources of oil in “key” hydrocarbon areas, which tend to be in increasingly remote and fragile parts of the planet.
To this end BP will “significantly increase investment in exploration” and focus on “upstream business in key oil and gas basins". Put simply, this means more exploratory drilling in unconventional areas like deep water and the Arctic, and explains why BP has invested so heavily in developing new operations in areas like the Kara Sea in the far north of Siberia.
It is also spending heavily to upgrade the Whiting refinery in Indiana, “significantly increasing its capability to process heavy Canadian crude". This allows BP to process and refine more of the climate-wrecking tar sands it gets from Alberta, some of which may come from the Sunrise project it wants to open with partner Husky Energy.
So what do the pronouncements from St. James’ Square really mean for one of Britain’s biggest companies, the millions of people who own part of it through their pensions, and, lest we forget, the global environment? Certainly the three of them are inextricably linked.
Well, BP is certainly putting a positive sheen on the new strategy, with Dudley claiming it’s an “opportunity to reset the company, adjusting the shape of our business, and focus on growing value for shareholders.” That sounds great, but there’s a problem. As Terry Macalister over at The Guardian points out, resetting the company seems to involve taking more of precisely the same risks that resulted in the near death experience that was Deepwater Horizon. Plans include more focus on the Russian arctic, Alaska, deep water off Brazil and Libya, and ultra-deep water off Angola. None of these are easy places to operate. And all of them carry the risk of something going horribly wrong. Again.
Which is why this is bad news for investors. The Gulf of Mexico spill sent BP’s share price through the floor. It’s written off billions to cover the clean up, the dividend has only just been reinstated and at a much lower level than previously. This means pension funds and pensioners, many of whose cash is directly tied to the company’s future, have already felt the effects of BP’s recklessness off the coast of Louisiana. And will suffer the same fate if it makes another hash of drilling in, say, the Arctic.
On top of this, you have to wonder at the logic of getting into bed with a company like Rosneft, which doesn’t have a particularly blemish-free track record. The Sun described them as “less than reliable partners” and quite how BP thinks that a strategic alliance to develop the wilds of the Siberian arctic with an oil major possibly facing a multi-billion dollar lawsuit for allegedly creaming off vast chunks of rival firm Yukos represents “growing value for shareholders” is anyone’s guess. In fact, the Rosneft deal looks so dodgy that a UK judge has issued a preliminary injunction to stop it from going ahead.
Clearly, chasing the last drops of oil from some of the world’s most remote places isn’t great news for the environment either. Should a spill happen in the high Arctic the consequences would be catastrophic, potentially be far worse than Deepwater Horizon, while questions remain over the efficacy of existing plans to contain a spill up there. And burning all the oil we can get our hands on will, at least according to the International Energy Agency, result in an average 6 degree global warming. No wonder Dudley said the other week that BP is “not as optimistic as others about progress in reducing carbon emissions". You don’t say.
So what’s the upshot of all this? You would have thought the millions of barrels of oil spewing out from the ruptured Macondo well nearly a mile under the Gulf of Mexico would have served as a salient warning to BP, the rest of the oil industry, investors and society as a whole, about the true costs of our addiction to oil. It should have shown the need to end our reckless pursuit of increasingly unconventional oil at whatever cost, and prompted a renewed focus on cutting demand, driving up efficiency and building real clean technology solutions.
Sadly, it seems Bob is unwilling to learn the lesson. This “sadly naïve” attitude, as The Telegraph puts it, threatening as it does both our pensions and the global environment, also means that the next Gulf of Mexico-style disaster may be lurking just around the corner.