“Capital discipline is central to BP’s strategy; making the right investment choices, sticking to our capital limits, and actively managing our portfolio in pursuit of long-term value,” BP (NYSE:BP) Group CEO Bob Dudley said in the company’s fourth-quarter and full-year 2013 earnings release. It’s a comment that we could expect to hear in any given quarter from one of the world’s oil and gas super majors — few industries rival the capital intensity of energy — but it’s particularly significant for BP right now. The company is engaged in the corporate equivalent of a juice cleanse combined with P90X, rapidly shedding assets while investing aggressively.
Through October, BP had divested $38 billion worth of assets, a landslide of sales catalyzed by the 2010 Deepwater Horizon disaster, and late last year, the company announced that it plans to divest $10 billion more. At the same time, BP reported organic capital expenditure of $24.6 billion in 2013, in line with expectations and up from $19.1 billion in 2011. For 2014 through to the end of the decade, the company is expecting to spend between $24 billion and $27 billion annually.
With discipline and active management in mind, BP’s investment strategy is constantly changing. On Thursday, news broke that the company was dropping its plans to invest in a refinery in China. BP had assigned a team to the the Qinzhou plant, operated by PetroChina (NYSE:PTR) in the Guangxi province, last month, but the International Energy Agency reports that thanks to waning demand and the threat of a supply glut, BP has backed away from the project.
Many of the world’s largest companies have turned to China in the eternal search for growth, but oil and gas super majors like BP, Exxon Mobil (NYSE:XOM), and Chevron (NYSE:CVX) may not find what they’re looking for — at least, they may not to the magnitude they were hoping for. Demand for oil in China grew at its slowest rate in six years in 2013, according to the IEA. At the same time, an enormous amount of capacity is coming online. At the current pace, new capacity growth is expected to exceed demand growth through 2018.
As a result, projects in China have been delayed as operators lose motivation to bring refineries online by previously established deadlines. PetroChina has intentionally delayed at least two refinery projects.
Leaving the Chinese project isn’t necessarily a bad tiding for BP, though. In 2013, the company reported its most successful year for exploration drilling in a decade. BP participated in 15 completed wildcat exploration wells — experimental wells that are drilled in unproven areas — seven of which can potentially be commercialized. BP announced a new exploration find in the Gulf of Mexico and confirmed news of a discovery in Brazil.