According to BP\u2019s 2020 Energy Outlook report, the \u2018Net zero\u2019 scenario is consistent with 1.5o<\/sup>C of warming and \u2018Rapid\u2019 is consistent with less than 2o<\/sup>C of warming.\u00a0 \u2018Busines as usual\u2019 assumes the continuation of current policies.<\/p>\n Under the Rapid and Net Zero scenarios, liquids consumption has already peaked and will fall from 100 million bbl\/d in 2018 to 52 and 31 million bbl\/d in 2050 respectively.\u00a0 Gas consumption in the \u2018Rapid scenario\u2019, on the other hand, grows until 2035 before falling back to 2020 consumption levels in 2050.\u00a0 In the Net Zero scenario, gas consumption falls by a third by 2050.<\/p>\n BP\u2019s upstream production guidance to 2030<\/strong><\/p>\n BP\u2019s guidance for its equity production is that it will fall by c. 40%, from 2.6 mmboe\/d to 1.5 mmboe\/d in 2030.\u00a0 It plans to sell 600 mboe\/d of production by 2025 of which 200 mboe\/d is in deals which have been agreed already.\u00a0 \u00a0BP\u2019s 19.75% stake in Rosneft contributes 1.1 mmboe\/d and is not included in the targets above. \u00a0Rosneft looks increasingly peripheral to BP\u2019s central aim of achieving carbon neutrality and becoming an International Energy Company, rather than an IOC.<\/p>\n The chart below shows that BP\u2019s planned cuts to its oil and gas production are far greater than the implied fall in global demand in its own scenarios even under a world on track for 1.5 o<\/sup>C of warming.<\/p>\n The scale and speed of the transition BP is undertaking is without precedent.\u00a0 Ignoring Rosneft, the cut in production from 2.6 to 1.5 mmboe\/d means that BP will be producing 400 million fewer barrels of oil equivalent per year in 2030.\u00a0 BP indicated that it would \u2018manage the R\/P ratio down to 8 years\u2019. R\/P ratio was around 11 years at end 2019.<\/p>\n BP has indicated that it will cut E&P capex from ~$12bn in 2019 to ~$8bn in the 2021-2025 period.\u00a0 Oil projects will need a payback period of <10 years and gas projects <15 years to be sanctioned. Average point forward development costs are estimated at $9\/boe.<\/p>\n BP would produce 8 billion barrels of oil equivalent over the next ten years, excluding Rosneft, assuming a linear decrease in production to the 1.5 mmboe\/d target in 2030.\u00a0 This compares to reported net proved developed reserves at end 2019 of 6 bnboe.\u00a0 \u00a0An R\/P ratio of 8 in 2030 with production of 1.5 mmboe\/d would imply proved reserves of 4.4 bnboe. \u00a0BP stated it had 16 bnboe of \u2018resources\u2019 in the strategy presentation, therefore, in theory only 6 bnboe of this resource would be need to be moved to reserves over the next 10 years. \u00a0\u00a0\u00a0BP therefore has currently more than enough discovered resource to replace reserves without exploration<\/p>\n Exploration spending will be cut to $350-400 million per annum with a focus on new hubs in existing areas. \u00a0The strategy appears to be to maintain a hopper of 400 million boe risked volume net to BP.\u00a0 Examples of near-term drilling that fit this description include the Ironbark gas prospect on the NW Shelf of Australia, the Shafag Asimam gas prospect in Azerbaijan and Galapagos Deep \u00a0frontier oil prospect in the Gulf of Mexico which have been on BP\u2019s books for many years. There will be no new country entries and presumably also exits from acreage that no longer fits the strategy.\u00a0 In 2019 BP reported spend of $1.3bn of E&A ($800m exploration only) and said exploration and acreage access capital peaked at $4.6bn in 2010.\u00a0 This a significant chunk taken out of the global exploration budget and marks the end of BP as a major player in exploration.<\/p>\n Investor reaction? <\/strong><\/p>\n BP\u2019s share price has fallen by 53% in the last 12 months and is second worst only to Shell of the five Supermajors.\u00a0 ESG investors may be celebrating the pivot in strategy but the wider investor community has not yet rewarded BP for its efforts.\u00a0 So far, the cuts to dividends announced by BP and Shell have seemingly outweighed ESG considerations in the minds of investors.<\/p>\n![\"BP](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2020\/10\/WI-05-10-20-BP-Consumption-1024x551.png\")
\nBP World Energy Outlook 2020 data pack and Westwood analysis<\/h6>\n![\"BP](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2020\/10\/WI-05-10-20-BP-Consumption-Changes-1024x551.png\")
\n<\/strong>BP World Energy Outlook 2020 data pack and Westwood analysis<\/h6>\n
\nImplications for the E&P business<\/strong><\/p>\n
![\"E&P](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2020\/10\/WI-05-10-20-Share-Price-Changes-300x161.png\")