BP outlined plans to further boost efficiency and reduce costs with the aim of improving its annual underlying pre-tax profitability by more than $3 billion over the next two to three years.

The company also extended its medium-term oil and gas production outlook, projecting that annual output would rise by 1-2 per cent a year on average to 2015, at $60 per barrel from a 2008 base, and expressing increased confidence in further production growth out to 2020.

Previewing BP's annual strategy presentation to the financial community, Group Chief Executive Tony Hayward said the company had established strong momentum in its core businesses and had made great progress in reducing costs and improving absolute and relative financial performance in the past two years.

But there was a lot more still to do, he added, announcing the start of what he called "a new phase to realise the potential of the portfolio built over the past decade".

"The challenge and the opportunity for us is that while our portfolio ranks amongst the best in the industry, our financial performance has yet fully to reflect this," said Hayward. "There is now a real opportunity to make this portfolio work harder for us and we intend to do just that." Hayward said there were more opportunities to improve operating and cost efficiency right across the company, from refineries and marketing operations in the downstream to procurement, drilling and project management in the upstream.

BP's Refining and Marketing segment has committed to further improve underlying profitability by over $2 billion over the next two to three years, and to ensure that refining operations can be profitable even in depressed conditions like those the industry faced in 2009. Hayward said BP's R&M business was well placed to compete because of the quality of its portfolio, featuring on average larger and more advantaged refineries than its competitors', and because it had already delivered a strong improvement in underlying performance and reduction in costs.

In Exploration and Production, a significant organisational restructuring is underway to centralise project management, improve cost efficiency and inject greater consistency into operations. In particular a Centralised Developments Organisation is being established to manage all major projects in the portfolio. These developments are expected to enhance capital efficiency and improve returns in the coming years.

"Whichever way you look at it, there are significant opportunities for improvement and in every case firm plans are in place to close these gaps," said Hayward. "Our direction is clear: the unrelenting pursuit of competitive leadership in respect of cash costs, capital efficiency and margin quality. We believe we have made a good start – but it's only a start."

Tags: BP PLC