Oil producers across North America may be looking at dialing back their investment plans amid plummeting oil prices in recent weeks, but BP’s Middle East chief is unfazed.
The British oil giant has planned its investments with a wide price range in mind, accounting for drops like November’s, BP Middle East President Michael Townshend told CNBC on Sunday.
“You don’t plan on today’s oil prices — you plan on a range,” Townshend said during a conference in Dubai organized by the Iraqi British Business Council. “We see a sensible range would be in that $50 to $70 range [?]. And that’s what we plan on.”
Crude prices have been on a rollercoaster ride, falling to a year-low on Friday, just weeks after hitting a nearly four-year high in October ahead of U.S. sanctions on Iran, OPEC’s third-largest oil producer. Dubbed oil’s “Black Friday,” global benchmark Brent crude dropped 6.1 percent to $58.80, down 22 percent for the month on fears that the world is oversupplied.
The conference, centered on Iraq’s reconstruction one year after the defeat of the Islamic State militant group, highlighted the need for investment and improved efficiency in Iraq’s power sector. Asked if the lower oil prices would prove problematic for BP’s Iraq operations, Townshend replied that the company was prepared for turns in the market.
“Our investment decisions are all based on a range of pricing, they’re in that $50 to $70 range — whatever today happens to be, we have no control over whatever tomorrow happens to be,” he said. “Our job is to make sure we’re as efficient as possible so we can work through whatever the oil price is. We can’t predict the oil price.”
But if history is any guide, a drop in oil prices means a drop in Iraq’s capital expenditure, according to Frank Gunter, professor of economics at Lehigh University in Bethlehem, Pennsylvania. Iraq’s government will likely have a much harder time funding its own infrastructure development projects, he said. [?]
When oil prices collapsed in 2014, capital expenditure dropped by 50 percent — meaning important investment projects were abandoned and had to be completely restarted years after.