BP Aims Arctic Expansion – Analyst Blog

The company plans to continue development in the Arctic region over the next 30 years with total investments of around $12 billion. The production is anticipated to commence in 2016 and reach the level of 15 million metric tons annually within 4 or 5 years, thereafter. The output will be transported to the end markets of either Europe or Asia through the East Siberia-Pacific Ocean pipeline.

Out of the total investment, around $2 billion will be used during 2012-2014, as TNK- BP intends to develop 4 oilfields located in Yamal in northern Russia. Further investments of $6 billion are planned over the coming 30 years. The company is concentrating in this region in an effort to diversify its production sources, as its traditional oil producing regions of Orenburg and West Siberia are facing production declines.

Currently, the annual yield at TNK-BP’s Rospan unit in the Yamal region is about 3 billion cubic meters of natural gas. The company expects nearly 27% of total production to come from Russia’s Yamal region by 2021, whereas the share of hydrocarbons from the Orenburg region in Western Siberia is expected to drop to around 20% from over 50% currently.

TNK-BP estimates gas output to peak at 16 billion cubic meters by 2017 and stay at this level for seven years and total gas production of 270 billion cubic meters over the next 30 years. Until 2020, the company plans to invest $4.9 billion at the Uvat group of fields in East Siberia in order to increase production. The current output at Uvat is 7 million tonnes of oil per year.

BP holds a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. For the long term, we maintain a Neutral recommendation on the stock. The company faces competition from ExxonMobil Corporation (XOM).