I just stumbled across BP’s last annual investor presentation. Back in March, BP was sounding bold and its presentation, some might muse, was slick. The slides are full of aggressive statements on cost containment and growth. How times change. You can’t help thinking that the company might not have said some of things it did, in quite the way it did, knowing what we know now.
But the purpose of this note is not to discuss the current environmental/pr/political fallout the company is suffering in the Gulf of Mexico in the wake of the Horizon disaster. (I imagine most views have been expressed on this already.) Instead, and much more modestly, we’d like to examine one of their graphs on “Exploration efficiency”.
Companies love selecting data for their investor presentations that make them look good – a well known phenomenon and certainly not confined to BP. And the graph that BP presented painted a rosy picture (see graph on left). It showed BP adding more “Resource”, (presumably proved oil and gas reserves), vs its exploration spend, than any of its peers. The analysis was based on 2004-2008.
I liked the presentation of this data and decided to take a closer look. I thought our clients might want to see the current position based on the latest data.
But as I got into this, questions starting bubbling up.
It’s hard to know exactly how BP’s figures are defined because, as you can see from notes to the graph, there is a vague reference to IHS and Woodmac but nothing specific. What’s more, the BP figures are “internal”, and not, (which would seem fair wouldn’t it?), calculated on the same basis as the other figures in the graph.
So I decided to reproduce the graph based on the latest data. I calculated an average 2005-09 exploration spend (based on SEC FAS 69 costs incurred) and a “Resource Addition” of proved oil and gas reserves over the 5 year period (again taken from the SEC) with natural gas being converted to oil equivalent at 6:1.
The picture that emerged was somewhat different. In our analysis, it’s Shell and ExxonMobil that are looking good with BP looking more like an ‘also ran’.
It’s interesting that Shell is making a gigantic efforts to redress its exploration failings of the past and it seems to be doing a pretty good job. Also noteworthy that PetroChina is spending money hand over fist on exploration but not apparently doing so quite as efficiently as some of the established Majors. Of course one of the reasons for the difference between BP and Evaluate Energy’s analysis is simply that we have updated it to show the latest 5 year rolling average.
Will the BP graph appears in next year’s presentation? Perhaps not: we can reasonably expect a profound shift in emphasis towards environmental responsibility and away from aggressive policy statements about cost reduction. But either way, next time the data could be better documented.