BP exploration boss leaves after spending cuts

[LONDON] The head of exploration at BP , Richard Herbert, is leaving the British oil major after slightly more than two years in the job, a period in which the company slashed spending on the search for new deposits.

Mr Herbert, a BP veteran and a long-time ally of chief executive Bob Dudley, rejoined BP in October 2013 after several years at rival Talisman Energy. His task was to lead exploration activity to help the firm rebuild investor confidence following a deadly US Gulf oil spill in 2010.

But as oil prices began to crash from mid-2014 and BP had to shed assets to pay off some US$50 billion in US liabilities for the Macondo spill, the firm had to reduce funding for costly exploration projects.

"Mr Herbert simply didn't get a chance to drill a lot of wells ... given where BP stood post-Macondo and where the oil price went," a source close to the company said. Mr Herbert was not immediately available to comment.

In an emailed statement to Reuters, BP said Mr Herbert would leave the company in June, following a decision to simplify the upstream executive team, headed by Bernard Looney, and bring exploration, global projects, reservoir developments and technology under one roof, reporting to James Dupree.

Howard Leach, head of technical functions in exploration, has been appointed interim head of exploration.

In the last two years, BP has found oil and gas in the Gulf of Mexico, the North Sea, Egypt, Angola and Brazil, as well as establishing exploration positions in Russia, China and Mexico.

But its reserves replacement ratio - a key metric for investors showing the extent to which new discoveries can replace annual output - fell to its lowest in many years in 2015 to 61 per cent, from 63 per cent in 2014 and 129 per cent in 2013.

Poor reserves replacement ratios are not only due to a lack of new deposits but also a lack of investment decisions amid low oil prices, since companies must commit to investing in new fields before they can book them as proven reserves.

With oil prices down around 60 per cent since mid-2014, the temptation among oil majors to cut exploration costs is strong but the nature of the energy business means companies must add new resources as producing assets gradually run out of oil.

The reserve replacement picture varies greatly for BP's rivals, with Shell showing even poorer numbers of 48 per cent in the past three years while Eni had RRR of 148 per cent in 2015.

Like many of its rivals, BP was also badly burnt by some US$3 billion in upstream write-offs, many due to unsuccessful exploration including in Libya, Angola and the Gulf of Mexico.

Late last year, Mr Herbert told a conference in Abu Dhabi that global deflation and lower prices of goods and services should help the company to be able to invest in long-term growth while cutting costs.

But BP has, nevertheless, slashed its exploration spending to around US$1 billion this year from US$3.5 billion as recently as 2013 as it focused on rebalancing its finances to be able to keep paying dividend while also investing in existing fields.

"(Exploration is) the one thing I think that we can phase, and we'll just be very cautious and careful around that," BP's chief executive Bob Dudley said in February.

Back in 2013, Mr Herbert was brought in to replace another BP veteran, Mike Daly, who spent eight years as the head of exploration.

Before joining Talisman, Mr Herbert spent six years at TNK-BP in Russia as vice-president for exploration and then technology, serving under Mr Dudley, who was then the chief executive of the venture between BP and several Russian-born oligarchs.

REUTERS