BP's Ambitious Plan to Boost Efficiency and Increase Returns on Capital

BP Amoco, following its acquisition of Amoco in December, has announced a three-year plan to increase return on capital to about 16 per cent by 2001, from 10 per cent. To achieve this, the company aims to boost capital spending to $26bn, sell $10bn of assets, and cut costs by $4bn. This plan is designed to put BP Amoco at the leading edge of the oil industry, in line with industry leaders Shell and Exxon. The company is confident in its ability to achieve the projected cost reductions, having successfully done so in the past.

Key Takeaways:

• BP Amoco has set a target to increase return on capital to about 16 per cent by 2001, from 10 per cent.
• The company aims to achieve this through a $4bn cost reduction, representing about 20 per cent of its controllable costs.
• BP Amoco plans to sell $10bn of assets and reduce its exposure to refining by selling about 30 per cent of its capacity.
• The company has announced five new oil discoveries that will add 1.3bn barrels of oil to reserves, or about 14 per cent.
• BP Amoco is targeting production growth of about 6 per cent a year for the next decade.

Statistics:

• BP Amoco's three-year targets include boosting capital spending to $26bn and reducing costs by $4bn.
• The company plans to sell $10bn of assets, with $4bn in exploration and production and $2.5bn in chemicals.
• BP Amoco aims to achieve a return on capital of about 16 per cent by 2001, from 10 per cent.
• The company has reduced its cost of producing a barrel of oil from $7 to about $5.

Sources:

• Finite Times Limited, 1999.
• John Toalster, of SG Securities.
• Fergus MacLeod, from Deutsche Bank.