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BP's Bob Dudley on working in Russia: 'We have the trust'

In an interview with TASS, Dudley talks about leaving BP, outlines the reasons why oil prices are unlikely to return to $100 per barrel and reveals the ways to gain the trust necessary for working in Russia

- Here in Davos we hear many calls to curb investments into fossil fuels. Some hedge funds pledged to stop investing in such assets. How do you think this will affect the future of the industry?

While the world is working on this energy transition how to get to 2040, where there is likely to be 2 bln more people on the planet, the world will need 30-40% more energy by 2040, which is the equivalent of another China and another United States or another China and another Europe. So that’s is a great dual challenge, how we provide energy for a growing population that is really moving people onto poverty and we need to reduce our emissions by half, by 50%.

So it is a complex problem. It requires everyone to do this; the world will need all kinds of fuels. It cannot be just companies or some companies to solve this issue or stop producing because others will just fill that, because the world needs this energy.

So, we’ve got to work together: companies, governments, government policy, and consumers. So, if we look at 200 years of economic history, without price on something or cost, you don’t change anyone’s behavior. So, we do need to put some sort of price or tax on carbon and equally turn things that will actually help reducing emission.

Some people say, it is easy, we just need to go to all renewable energy but renewable energy today, not counting hydro, but solar, wind and biofuels, make up between  3 and 4 percent of the primary demand for energy today. We cannot cover all by renewables, we will not get there. And as the world turns its back on nuclear, which is unfortunate, we need to go back and look at use of natural gas and oil, to reduce coal, as much renewables as we can.

We need something called carbon capture, and storage or carbon capture and storage. Most ideas on it are already here but we will be hearing a lot in decades ahead about CCS and CC&S. And I am confident this will happen but it cannot be just the companies it requires, government policy as well.

- So you don’t see fundamental reasons for deterioration of oil demand in the long term? I mean, you do not expect people to stop using oil any time soon?

Well, I think we will see a transition here. I think there will be a reduction in use of oil and coal over time. I think there will be advantaged oil economically and light oils, they will always be part of chemicals. I mean in coming time, for decades and decades, we will still be using oil to make pertochemicals, most certainly, but displacing fuel oils with natural gas or other things to generate power – it has got to happen.

So we will see reduction in global oil demand as we get farther in the century, and in some places it may come down quite a lot. In some countries, if they outlaw the internal combustion engines, for example, to encourage electrification and e-vehicles, you will see oil demand drop in those countries, but globally I do not see that happening.

- With energy transition on track how the oil industry will change in ten years? How the ideal oil producing company should look like?

I think, firstly, the energy transition is on track but I do expect greenhouse gas emissions to go up here for several years before they start coming down. Same is with coal usage.

So the ideal oil company will depend on where it is geographically in the world. I think the oil companies, the oil and gas companies truly will, and I think we are already, be energy companies. In some companies energy just means power, but I think about all forms of energy, so BP has about 8,000 people working in renewable energy today, biofuels, wind and solar development companies.

The returns from them are not as high as they are on oil and certainly gas projects but I think if there is such a thing as an ideal company, it will position itself always for the next decade and the next decade after that, so investing in new technologies, to be ready for win as those become high return projects and as the old ones phase out, but this can take decades.

Bill Gates said it very well: there are two kinds of people in the world, those denying climate activity and those that think it is really simple to solve. And the answer is somewhere in the middle.

- Do you think that oil majors are becoming "bad guys" for the rest of the world because of the climate agenda? Are they facing real difficulties in attracting financing?

I think in particular in Northern Europe, and in the East Coast and in the West Coast of the United States, energy companies, oil and gas companies are quite out of favor.

And there is a new thing that in my view is very early days quite simplistic – this is ESG investment (Environment, Social and Governance). And there are about a hundred and thirty different groups setting their ESG indexes and surveys. In many of them, it’s a big capital ‘E,’ may be just a little bit of ‘S’ and they do not care much about ‘G.’

You know, really this should be ‘ESG’ all through. Companies like BP and the other big oil companies – I think the governance is excellent in those companies. We do not get much credit for that. Socially we do things all over the world. So, really, the ESG movement seems to be mostly about ‘E’ right now. And I think there needs to be a better definition of what this is about.

So, yes, it will put pressure on divestment, it will put pressure on voting resolutions on companies, directing them and their activities. I think it is overly simplified, unfortunately. Complex problems are usually complex, for a reason. But I think companies like BP are doing a lot, Rosneft is doing a lot, by the way. They are working to define greenhouse gas emissions baseline and reducing it, reducing flaring. Rosneft has tied its strategy to SDG - sustainability development goals, so Rosneft is doing well.

But I think the European companies and some US companies we have greater pressure on us but if we manage it well, we will thrive and I am confident we will do that.

 - How do you think the oil market will react to these challenges? We all remember times with $100 per barrel, do you think these days have gone?

Well, at least for a moment, I think it is. I think if the energy transition is not managed very well, we can get up with a shortage of all forms of energy, because population will grow and economic activity will increase. So there has to be a balancing pace of investment. Or else you could end up with higher oil prices.

I think that was different in the last 5 to 7 years - in the past, it mainly been Russia and Saudi Arabia; they were two great oil and gas producing countries and now you have the third one – the United States.

- Or even the first one?

It is, it has the highest production today. But everything is changing in terms of the price spikes and I think this is a downside, because now if the price goes higher because of shortages in other places, temporary blockages, the US can increase its production.

On the downside, the US responds very very quickly to price signals. So when the price of oil will drop very precipitously, companies in the US, which do not follow a greater economic policy, they just respond to the market, so they will start drilling, add production. The US has created a dampener on the price of oil up and down. I think this is a new point we have not seen in three or four years… I think it will be good for the world to have the price of oil not swinging up and down so much.

- Bob, you have been working with Russia for over 30 years. You keep doing this, even when others were selling assets and leaving. Why did you stay? Is there any special knowledge that allows a foreigner to successfully conduct business in Russia?

I have worked with Russia for a long-long time. Going back in 1980s, I’ve always enjoyed that. There were some ups and downs, but I always enjoyed it.

I think, like everything in life, you need to enjoy what you do, take patience and perseverance, always put yourself into other person’s shoes and this, as I think, was successful for such venture as TNK-BP.

 - Do you still command Russian language?

I do not read and write, only speaking.

- You are about to leave the company at the end of March. What will you do? What are your plans?

Well, after March I will continue on with Rosneft on the Board, continue in the industry, in someways, in the Climate Initiative (OGCI, headquartered in London, brings together major energy companies, TASS).

I will keep an office in London, I have a place in London and in the US and then I am just really carefully committing my time. For forty years I worked almost seven days per week, continuing as the CEO.

I think it is time I owe to my family, to just spend a little time and carefully think of what I want and what I have to do. I am excited about it. I am very pleased with passing in BP, very smoothly, to a really good CEO and management.

- How did Rosneft react to your decision to leave?

Well, it was charming reaction, because Igor Ivanovich [Sechin] and the team said why? I think it just caught everyone a little bit by surprise but I think I always planned that, for a couple of years in advance. I explained to team in Rosneft and others that it is fine, it is a good thing, I am happy with it but I'll stay in Board.

- Have you decided to stay in the Board because of a special relationship with the management of Rosneft, with Igor Sechin?

Yes, in time, all these things will transition. But I think, as you know, trust is really important in Russia. It takes a long time to build the trust and I think we have the trust; there is no reason why not to continue.

- Do you think Mr. Looney can take this position in the Board in a future?

A: Well, when we originally did the transaction with TNK-BP, it was part of the condition of doing that, there was a Rosneft’s request that I be involved in that. I am not sure this is a right thing for a CEO of a Western company to be on the Board, because it takes a lot of time. But we have great people in BP that can fill this role in the Board in the future. I think it will be fine. And Bernard may do that, but CEO’s role is so busy, travel all the time, that there may be someone or two who can devote more time to it in the future.

- As we learned BP CFO Brian Gilvary is about to resign. Is this somehow related to your decision? Will the BP team be fully updated?

Some of the team will definitely [be renewed].

Brian is really a close friend of mine. We worked together for 20 years, he’s been with BP for 34 years. I think he will see some people who really worked a lot for this. He probably deserve retiring. And we have got really good people behind in the company, with experience in transition.

- What are your expectations from the new Russian government in the oil and gas industry? What needs to be done in the first place to prevent a drop in oil production in Russia? (The interview was done before Russian cabinet was announced, TASS).

Well, I think and I do not want to get into the politics of this; I am certain there will be a wise Cabinet selected amid changes because there is a lot of wise experience in running government in Russia and a lot of wise experience in the oil and gas industry as well.

I think production today is somewhat capped by the OPEC+ agreement. I am not too worried about production falling. I know taxes in Russia are higher than in most countries around the world in oil and gas. I think at some point, to remain competitive, to ease back on that, make sure that investments continue, this is probably a natural thing.

- So the first steps should be towards reducing the tax burden?

Well, I think you have to balance it with the OPEC+ agreement today. To remain competitive, particularly on late oil fields in Siberia, reduction of the tax burden will extend the lives of the fields; and I think that is what we’ve seen with Samotlor, Priobskoe. And in some new areas which may be more difficult to develop, might require reduction of taxes but I am not giving advice to the government. I think this is just natural economic.

Interviewed by Iuliia Khazagaeva with contribution of Vlad Kozin