BP chief defends green energy record

BP chief defends green energy record

Chief executive Tony Hayward denies firm has turned its back on renewables as it reports massive slump in profits caused by fall in oil price.

(By David Teather via guardian.co.uk)

BP chief executive Tony Hayward today defended the company's record on renewable energy, as it reported a dramatic slump in profits for the latest quarter due to the decline in oil prices.

Hayward said it was "not true" that the oil firm had turned its back on the alternative energy industry, despite the recent closure of separate offices for the division and the decision to pull it into the main headquarters. He said the company would invest between $500m and $1bn this year and was on track to exceed the $8bn (£5bn) of investment it pledged over 10 years in 2005. But he reiterated that the money would be more clearly focused, and mostly outside Britain – bemoaning the lack of available land for wind power and the difficulty in gaining planning permission.

"We established the alternative energy business in 2005 with the purpose to explore options, which we did," he said. "It was now right to look at the array of options before us, and to step back and say 'What can make commercial returns? What could be material to BP? And, frankly, what would have some synergies with the existing business?' It is a perfectly reasonable way of proceeding."

The company is concentrating on four main areas: biofuels, chiefly in Brazil; carbon capture and storage in the US and Abu Dhabi; solar power – where manufacturing has been shifted to India and China; and wind, in the US.

"We have focused on onshore wind power in the US, because you can do it at scale," he added. "We have a wind farm in Texas the size of Berkshire, which would be rather difficult in the UK, and it gives us economies of scale. It is very challenging to do onshore wind in this country because of scale and permitting issues." BP has interests in six large wind farms in the US, producing 1 gigawatt of power – enough to supply a medium city. The company later said the largest farm is at Fowler Ridge in Indiana, which is being expanded to 350 turbines producing 600MW.

BP reported second quarter profits of $3.14bn, a drop of 53% on the same three months a year earlier.

The business said it had managed to reduce costs by $2bn in the first half of the year, cutting 5,000 jobs in the process, and that it now aimed to exceed targets by taking another $1bn out of the business before the year end. But Hayward said there were unlikely to be any more large-scale job losses, with further cuts coming from third parties and deflation in the supply chain. "We have done the vast majority of everything we expected to do," he said.

The company would not be taking the axe to its dividend, he added, describing it as "sustainable at this point in time".

Hayward reiterated his view that a price of $60 to $90 for a barrel of oil was "a sensible range", although he acknowledged that the price was likely to hover near the lower end of that range for the near future. The price reached highs of $147 last year and slumped to as little as $35 a barrel. It is now hovering in the mid-60s. "We see little evidence of any growth in demand and expect the recovery to be long and drawn out."

The company said production of oil and gas rose 4% in the quarter compared to last year, the equivalent of 4m barrels a day, as new fields were exploited. Hayward said he hoped to finalise a deal to develop the Rumaila oil field in Iraq later this year. The Iraqi oil field is the third or fourth largest in the world, depending on the measure, with 65bn barrels of oil in place.

There were suggestions from environmental groups this week that the world might soon face a peak in oil demand as governments grow more concerned over climate change, energy security and the economic damage wrought by volatile oil prices. But Hayward dismissed the scenario. "I don't see it coming anytime in the near future. One day the world will stop demanding oil, but it is decades away in all likelihood. More than 60% of the world's energy needs in 2050 will still come from fossil fuels."

Analysts praised the cost cutting. "BP may not be able to control the price of oil, but their measures to streamline the business and reduce costs show the board is in tune with the ebbs and flows of the market," said Manoj Ladwa at ETX Capital.

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