The oil majors face a key challenge: Replacing reserves is becoming increasingly difficult for a company of BP's size. There is, of course, a lot of oil left in the world, but finding large amounts of new low-cost reserves remains a daunting task, in no small part because many governments now don't allow Western companies access to their resources. [Click here to enlarge]
BP's finding and development costs have been rising [Click here to enlarge]
Outside of Russia, BP (BP.) produced the equivalent of 860 million barrels of oil and gas in 2013; this represents the level of reserves it needs to book annually to prevent reserves from declining. But there simply are not this many barrels of conventional – that is, low-cost – oil and gas reserves annually accessible to BP. This has forced the majors to increasingly focus on higher-cost resources; deep water, oil sands, and shale gas, for example.
Therefore, at a given level of oil prices we'd expect BP's future returns to be lower, as nonconventional resources are typically costlier to develop and produce. This is one of the reasons BP's finding and development costs have been rising in recent years.
On the Macondo front, BP reached a $18.7 billion deal that will effectively settle all major remaining liabilities related to the oil spill. The key aspects of this deal; the settlement amounts, length of payment terms, were as good as investors could have hoped for. Once BP's SEC and criminal settlements finished being paid off in 2017, pretax Macondo cash outflows will fall to $1.1 billion per annum. A few pieces of litigation remain that could require additional payments, but these are minor in nature. All told, post-tax payouts related to the oil spill reduce our fair value by $4 per ADS, or 41p per share.
Provided we hit net 1,000bopd and 7mcfpd we'll be OK. Given our current turnover and loss the debts aren't insignificant. If we improve our balance sheet and book some reserves we can borrow some money against that if needed, hopefully it won't be. Given what was going on in the last 2 RNSs we should surely be OK. MMs know FRR has a consistent history of missing targets (albeit sometimnes circumstance) so if the next RNS demonstrates real progress and increases in revenenues the MMs will have to take note. Also, will we hear about the oil CPR, regardless the price of oil I hope this is still coming this year.
I agree with your interpretation that it could refer to resource size as opposed to current production. It's unclear which he means. Either way though it's pretty clear that he believes there's more gas than Georgia can need. That is big! As for debt, it's relatively slight and well managed. Can be paid in full just from part 1 of Varang.
To be fair, it says " the Georgian market is unable to consume the available volumes; therefore, it has to be exported.“ It does not mention current production, just available volumes. My interpretation is he is simply talking of the size of the resources in the ground. Progress on the increase in revenue from 1000bopd net and 7mmcfd gas is what will make our share price motor in the meantime in my opinion. First gas sales to Ukraine aren't expected until 2017. We have large debts to pay off before then, so imo, nothing is more important than becoming profitable and being able to pay/service the debts from revenue, rather than the usual dilutive way.
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