BP has said a plan to cut £4.7bn from back office costs helped offset an otherwise difficult quarter for its refining business.
The company’s refining and marketing business saw replacement cost profits – a standard financial measure used in the oil industry – fall by a third year-on-year to $729m (£475m) for the first quarter to 31 March.
In its results, BP said the refining and marketing division suffered from weaker supply than the same quarter last year, as well as from a poor environment for refining and from rising crude oil prices. But it said the problems were “partially offset by operational improvements and further cost efficiencies in the fuels value chains, and continued strong performance in the international businesses”.
The division, which like the rest of the group has standardised on Oracle business intelligence and IBM asset management systems, has been a principle focus of the company-wide cost cutting plan, and is expected to deliver two-thirds of £2bn cuts due over the next two to three years. During the previous quarter alone, the division spent $492m (£320m) on restructuring and rationalisation.
It was the only division to suffer in an otherwise highly positive quarter, in which group profits more than doubled to £3.6bn. BP was bolstered by fast growth in income from its exploration and production divisions which spent approximately a fifth as much on cost cutting – focusing on project management and procurement – and nearly doubled profits to $8.3bn (£5.4bn).
Some £2.7bn has already been cut from group-wide costs in the last two years, BP confirmed last month, leaving a further £2bn targeted for the coming years.
Extensive changes to back office operations, including IT, have played a significant role in the cost cutting so far. Last August, BP cut ties with 35 application development providers and signed £1.5bn worth of deals to outsource to IBM, Accenture, Wipro, Infosys, and Tata Consultancy Services. In December, it outsourced global communications to T-Systems and Siemens in another bid to reduce the number of suppliers it works with.
Job losses have played a significant part in the cost cuts, with a net loss of 8000 staff in the last two years – some 22,000 left the company and 14,000 joined. Among these, over 150 executives and 1500 permanent contractors at its office locations have left their roles.
BP’s acquisitions of oil firms Amoco and Arco, in 1998 and 2000 respectively, also brought in a range of legacy IT systems, leading BP in recent years to undertake a major IT standardisation project.
The oil giant uses the Oracle Primavera P6 project portfolio management software to standardise scheduling and planning, and improve handling of hundreds of routine work orders daily at each refinery. It also runs Oracle Crystal Ball business intelligence systems, to help with forecasting time and costs needed on large exploration projects.
Other key software the company has standardised on includes SAP financials and IBM Maximo asset management. It also runs an in-house Operating Management System, which is implemented at all major sites and aims to help design and manage processes tightly.
Tony Hayward, chief executive at BP, in March told financial analysts the company had made “great progress” in reducing costs. While the company’s oil business was performing strongly, he said, “our financial performance has yet fully to reflect this”. The changes would be “unrelenting”, Hayward said, adding: “We believe we have made a good start, but it's only a start.”