BP says goodbye to low prices as it plans projects for oil over $60

LONDON (Bloomberg) -- BP Plc boss Bob Dudley, among the first to say oil will stay lower for longer, is becoming more confident.

In a sign of the improving times, the British oil major is now planning its investments at $60-$65/bbl oil, raising it from $50-$55 last year, Dudley said Wednesday at the Oil & Money conference in London. While he doesn’t expect sustained prices of $85, it’s unlikely to plummet again.

Some of the world’s most influential traders see a broad range for oil prices in the coming months. Glencore Plc’s Alex Beard said Wednesday crude could rise to as much as $90/bbl in a year’s time while Vitol Group Chairman Ian Taylor predicts $65. Because of this uncertainty, Dudley, Royal Dutch Shell Plc’s Ben van Beurden and Total SA’s Patrick Pouyanne reiterated this week they won’t loosen their discipline on spending, even as they churn out huge amounts of cash.

“Are we now off to the races again with spending? My sense of the industry is it learned such a painful lesson,” Dudley said. “Capital discipline is really important.”

Still, higher prices may remove some spending “tightness,” even as BP will stay within its $15-billion to $17-billion annual investment budget, Dudley said. The company plans to approve a number of new projects that it has worked on with an assumption oil wouldn’t fall below $55/bbl. At least two of these will probably be in India, he told reporters.

Each of the company’s projects will make money at less than $40 oil by 2021, Dudley said.

Balanced, but volatile

Supply and demand in the oil market is balanced, he said, though prices remain choppy. Much of that is “emotional” as traders gauge the impact of U.S. sanctions on Iran’s exports that kick in early next month.

“It’s a very volatile crude world right now,” Dudley told reporters. “It could spike up and it could go down now. There are decisions that could be made that drive it either way.”

Brent crude has gained about 20% since mid-August, helping oil companies boost their cash coffers. BP’s priority remains to use the extra money to reduce debt, Dudley said.

The company expects to complete a $10.5-billion acquisition of BHP Billiton Ltd.’s U.S. shale assets this month, Dudley said. It’s progressing on a $5-billion to $6-billion divestment program to help pay for the purchase as it opens data rooms for older North American gas assets, he said.