BP reveals its profit plans for the next ten years.
When BP (LSE: BP) announced its results for 2009 early last month, we saw profits fall due to two things. Firstly, the market price of a barrel of crude oil has fallen by around half since its $147 peak in 2008. And with demand being cut back in an economically squeezed and very competitive downstream market, refining margins were falling.
In the longer term, I'm convinced that demand will be strong as the world's economies get back to growth, and with that (together with shorter term cuts in refining capacity in the industry), refining margins will strengthen again. And in the meantime, as I opined last month, we have one of the best dividend yields in the market to keep us going.
Greater efficiency
But BP needs to do something in the near to medium term, and we found out what on Tuesday with a press release, ahead of the company's annual strategy briefing, detailing its latest plans.
The main aim is to continue to reduce costs and improve efficiency, hopefully boosting profitability by more than $3bn over the next 2-3 years. The company believes that it is in a good position for its refining and marketing business to grow its profitability, telling us that its refineries are in general larger and more advanced than its competitors, and they should remain profitable even during any further downturns like we saw last year.
Growing reserves
BP also expects its oil and gas production output to rise by an average of around 1-2% per year until 2015, with growth continuing on until 2020. Chief executive Tony Hayward highlighted the fact that BP has, for the past 17 years, shown a reserves replacement ratio of 100% or more, and that the company's expertise in deep-water production and managing giant oilfields should set it in good stead to continue.
BP will also be investing further in new low-carbon energy business, through wind and solar power, biofuels, and carbon sequestration. How successful that will be is something we will have to wait and see, as BP's past expertise has most definitely been firmly carbon-based.
A solid investment
What does all this mean to investors? Well, I don't see anything dramatic here, but as a shareholder, drama wasn't what I wanted. To me, this week's announcement really just said "Steady as she goes". And what I see is one of the world's best companies, with very good long-term prospects, pledging to try even harder in the near term at what it does best -- and paying me a dividend of around 6% while it does it.
BP is a long-term ISA investment if ever I saw one. Mind you, I thought that about Barclays (LSE: BARC) just a couple of years ago.
More from Alan Oscroft
> Alan owns shares in BP.
