Dominic Emery, VP for strategic planning at BP, suggests sizeable chunk of firm's existing oil and gas resources could remain in the ground as it invests in new business models
BP has "dramatically" reduced its oil and gas exploration activity in recent years, and a sizeable amount of its existing fossil fuel reserves may never come out of the ground, a key figure in charge of developing the oil giant's long-term strategy has claimed.
Dominic Emery, vice present for group strategic planning at BP, said the UK firm was now much more "conservative" on its exploration activities compared to seven or eight years ago, and it now had a "huge amount of flexibility for the future" informing its investments in new business models.
"The amount of exploration activity that we do now compared to seven or eight years ago has been reduced quite dramatically, so we spend far less on it," he said at today's Economist Sustainability Summit in London. "We also have a set of reserves, some of which are booked effectively on part of our valuation of the company, but also we have what we call resources, which are not booked and don't form part of our valuation of the company. There's no doubt that both globally and within our portfolio, a lot of that oil and gas [from the resources side] won't come out of the ground. We do continue to do some exploration, but most of it is much more conservative than we did previously."
He explained BP was planning to "pull forward the value" of some of its existing oil and gas facilities "into a much shorter timeframe, so we can then adapt our portfolio", adding that the firm's strong capital efficiency allowed for significant investment in the future of the business.
"That gives us a huge amount of flexibility for the future, which includes new business models and tightening our exploration in the future," he explained.
Emery was speaking during a discussion on the measurement and progress of BP's and the wider oil and gas sector's climate efforts.
His comments come just a month after the firm's surprise announcement that it will back a shareholder resolution at its upcoming AGM that commits to publicly setting out a corporate strategy consistent with the Paris Agreement.
Emery said the wider global oil and gas industry had "moved on leaps and bounds" with regards to addressing climate change since the Paris Agreement in 2015, with BP - which bought a $200m stake in Lightsource in 2017 - and its rivals increasingly competing on their low carbon efforts.
He highlighted recent announcements over the past week from Shell on its climate targets, and Eni, which is aiming to use offsets to become net zero carbon by 2030. In the US, too, he said there had been a "dramatic change", pointing out even Chevron and ExxonMobil now had emissions reduction targets.
"I think there is now quite a lot of healthy competition now going on amongst the companies to sort of - a let's call it 'out-carbon' each other, and actually that's no bad thing," he said, while also highlighting collaborative efforts such as the Oil and Gas Climate Initiative (OGCI). "So there is cooperation going on, but there is also competition going on to take it one step further."
It is now almost a year since BP unveiled its new low carbon strategy, which set out its target to cut greenhouse gases from within its own operations by around seven per cent by 2025. However, the plan failed to include emissions targets for the actual use of its oil and gas - which represent around 75 per cent of the company's carbon footprint - and was therefore dismissed as "greenwash" by some environmental groups.
In light of last year's major report from the UN-appointed climate science body the IPCC, Emery said BP would "need to think deeply about the 1.5C scenario and when to plan for that effectively".
But in the meantime, Emery said BP would be releasing a report on its emissions reduction progress against its target "in the next few weeks", before later this year publishing "a fairly detailed description of the carbon intensity of our products".
"We've chosen to target in the first instance our operational footprint, so that's the reduced component of our framework. The improved component is actually about our products - actually reducing the carbon footprint of our products," he explained. "Whether or not we will then seek to set outward looking targets is something we need to determine, we just need to get data clear in-house before we do that."
Cutting the carbon from its oil and gas products would be beneficial to BP's business, though, he suggested. "But qualitatively we are committed to improving the carbon intensity on a unit basis of our products, so that when somebody goes out and chooses between a BP and alternative product, they will choose ours because we have a better carbon footprint."
In 2017 BP modified its boardroom pay policy so that executive performance remuneration no longer directly incentivised increasing production of oil and gas, covering the 2018 financial year onwards. And, it then announced last month that its new overarching emissions targets would be included as a factor in the reward programme for 36,000 BP employees around the world, including executive directors. Emery said linking the targets to pay had a sizeable impact on performance.
"Having a target is great, and then incentivising that target, which is the next step on, is even better," he said. "Just having a target has caused us to reduce the emissions footprint in a far more dramatic way than just having it out there as a KPI. In fact we have seen something like a threefold improvement in performance as a result of having a target with a bonus attached to it."
Looking forward, BP can play a key role in helping to decarbonise hard to abate sectors such as steel, cement and petrochemicals, Emery argued. "We provide a lot of the energy that goes into those sectors, and clearly one thing we are going to be able to provide is solutions to that," he said. "That could in our case be in our solar business providing low cost, low carbon power, or it could be carbon capture usage and storage, which I think is going to be essential to help these hard to abate sectors to decarbonise."