First on CNBC Interview: CEO of BP, Bob Dudley

Following is a transcript of a First on CNBC interview with Bob Dudley, CEO of BP, by CNBC's Steve Sedgwick at the World Gas Conference in Paris.

Steve Sedgwick (SS): Supply. You've already alluded to the Middle East, and I think we're talking about Saudi here, let's be honest. What they have done, and what they haven't done this year. They were a price maker historically. They have been for 30, 40 years. Why do you think they changed their tactics? Why do you think they chose to take the Shale Revolution head on? What do you think has happened?

Bob Dudley (BD): Well, I don't think it's geopolitics. There's a lot of speculation about conspiracy of geopolitics. I think it's simply they've said why should we take the lowest cost oil production in the world and shut it in to subsidize high cost oil production. I think it's as simple as that. And they decided that's in the long term not a good strategy. What the Shale Revolution has shown, and I'll call it a revolution because it is – both gas and oil is probably the greatest innovation in the energy industry in the last 50 years because it's happened successively. It has brought the US now to almost being the swing producer, which Saudi Arabia has done. But it's higher cost. And I think it's a true testing to find out, what is the economic point of this? It's going to be very painful for many parts of the world.

SS: I see as much copy that says the US has won the battle with Saudi. Then I see copy saying Saudi has won the battle with the US as well. Is anyone winning?

BD: Well, I think we're getting back to rational economics on this. I think there's about 1.6 trillion dollars of wealth or value is moved from producing areas of the world to consuming areas of the world. So the winners are clearly China, India, Indonesia, Europe overall, the UK overall, difficult in Scotland. Actually, the US overall, is a winner with the drop in prices because the two coasts effectively, but the heartland producing region – it's very painful.

SS: I read the US consumers are not spending their savings from cheaper gasoline. They're saving, they're not spending. Why do you think that is?

BD: I read two different reports. Some say they are spending it. And others say they're not spending it. And I think there's enough economic uncertainty in the US that people are cautious about spending. I mean they're clearly are – we do see demand rising in transportation fuels in the US, in gasoline around the world, with the lower price. But I think we're somewhat masked by the summer driving seasons in North America. We'll see what happens.

SS: I read somewhere recently that the US will never be truly energy independent because they are part of the global system, even if they get some form of North American equilibrium with Canada added in as well. The fact is, no one else will be energy independent, hence they are part of that system as well. Am I splitting hairs, or do you agree with me?

BD: No, absolutely agree with you. That's absolutely right. Think of the trends in the United States to build refineries for heavier oils, particularly along the Gulf Coast. With a decision not bring heavy Canadian oil down, they have no choice except to bring in heavier oils from outside the US – Venezuela and places like that. It will always remain connected. You'll start to see LNG supplies exported. It's always a reluctance with oil exports but the United States, diesel and gasoline flow back and forth between Europe and the US. It isn't just the crude oils. It's the products as well.

SS: Why are Americans obsessed by energy independence? We know that we've got a problem in Europe with who supplies us with our energy. It's too few suppliers. Some people say, Russia we can't rely on it because of geopolitics. But why are the Americans obsessed by energy independence given that their supplier ie the Middle East, has been a reliable supplier for 40 years?

BD: You're right. There is something in the system there. And I think it goes back over 100 years ago the standard oil trusts were broken up. Oil and gas and gasoline has always been a politically hot topic. The distances are vast so people don't want to spend a lot of money on gasoline or petrol. And it's a political issue when the price of gasoline in the US goes up it always becomes instantly political with investigations. I spend time on both sides of the Atlantic, and $2 a gallon, $3 a gallon in the last period of time. And then you look in the UK it's about $9 a gallon, people don't even think twice about it. But it's political, it's deeply engrained in the system and I think that it's not any outlook for changing that.

SS: I asked Mr Badri the same. And he got quite annoyed. He just didn't get it. Part of the Marshall plan he told me, it was energy from the Middle East was always part of the equation as well. Is there just a dislike of the Middle East?

BD: No, I don't think it's a dislike of the Middle East –

SS: Distrust?

BD: I think there was always a period, during the 70's, OPEC embargoes, gasoline lines, that's still within a generation or so memory. There's a little bit of that. But it's just an independent spirited country.

SS: What's going on at OPEC do you think? Is OPEC anywhere near as effective as it used to be?

BD: I think they're different parts of OPEC in terms of the prosperities of the different countries. And clearly some of the OPEC countries are bound and determined to stay on a path that they can afford more. So I think there's probably lots of debate going on inside of OPEC. I think they have a path. I think it is based on just fundamental economic principles that - so I would expect them to stay on the course they're on.

SS: Let me take you down the road. I see 12 producers who all want to produce at full tilt. If the Saudis are failing at being swing producers, everyone says we want Saudi to cut Venezuela, Algeria, Nigeria, Iran and Iraq – no one else wants to do it apart from the GCC allies as well. They want Saudis to do all the heavy lifting. That's what I see. I don't know if you agree.

BD: Well I think there's a history of that if you look back in time. There's been a little bit of that, and the expectation of course is Saudi Arabia produce such a big block of the oil – 9, 10 million barrels a day. And then you've got the UAE and Kuwait in particular that produce. So the 3 countries there alone probably get 40% of OPEC. And the prosperity is great in those countries, so you probably have tensions between those nations.

SS: Do you think they'll ever be cohesive again?

BD: I think there's a…they have a history of discipline over time. And I think that discipline will remain there. There will be tensions within it, and I'm not an expert on oil-

SS: But if we could take out the security implications from Iraq and Iran as well. Those guys have got 300 billion barrels between them, which is more than Saudi. I can't see them being disciplined in terms of supply, given the opportunity.

BD: I think the philosophy has been when the price is high, clearly many alternative sources such as the shale oils in the US come out, and I think we're heading more towards a rational oil market here for quite some time. And I think that's not bad. We think the price of oil will be lower for longer. The oil and gas industry when it was $10 a barrel had a certain rate of return for those investments. At $100 a barrel it's about the same. So cost structure, discipline, taxation systems around the world are far out of balance from where they are. And the oil industry has been rather well known for the past half a decade, a decade of operating cash flow, bringing it back into projects, overspending, being late. And shareholders saying well what's the point of that. So I think this is going to drive in a new set of discipline for –

SS: Talking about OPEC politics, I can't see Iran backing down from this one if they get a nuclear deal in the month of July as well. I just see them getting on the phone to you and saying Bob come in, this is where it's at.

BD: We've had no discussions on it. And I think this will take some time. I think you're right. There will be additional supplies on the market, there's a lot of floating storage in Iran and they can bring back increased production. It's probably a negative price signal for the markets when this thing is done. There will undoubtedly be stringent verification requirements, so I don't expect this to change immediately, but the sentiment will change, which is partially why we're in the lower for longer feeling in terms of projecting oil prices.

SS: Last time I asked you about Iraq, you weren't worried about security implications of what was going on with IS then. Are you now?

BD: Well, we operate in the far south, around Basra. The oil fields are in the deserts. We have had – I feel comfortable with security. I never want to talk about it really. It's not the right thing to talk about. My position hasn't changed.

SS: But if the government is only 70 km away from the Islamic State's forward positions, you've got to worry about Baghdad's safety, let alone Basra.

BD: I think there's a lot of commitment around the world to not see that step happen.

SS: What's going on in Russia at the moment? There are concerns about energy security. For Europe, the sanctions regime is still in place. It's expanded on the Russian side as well. How tough is it for you to do business? Of course you have this big stake in Rosneft. How tough is it for you?

BD: Well, we certainly are not going to do anything to violate the sanctions. So we will absolutely work within those. We do have about 20 percent ownership in Rosneft, which is about a 5 million barrel a day oil company. We have… Relations are good. Stay out of the politics. We… I think have, a lot of experience in Russia. We've been working there 20 years. Our commitment to remain and work in Russia. And we'll be exploring other additional investment opportunities there.

SS: So it's a question of expanding relationship with Rosneft rather than paring it down at some stage?

BD: That's right. That's our intention.

SS: No intention of selling the 20 percent stake?

BD: No. They're a good partner, we've worked there a long time, we want to remain absolutely committed to it, and expand in all within the regime…

SS: And you've said you're not going to do anything that's going to bust any sanction. That is very clear. But to expand in the artic as well and areas like that, you're going to need to push forward technological cooperation. That can't happen at the moment, can it?

BD: Well, in conventional oil and gas… it can. There is a lot of cooperation. A lot of companies are operating there, it's not just us. A lot of companies operating on shore, so the conventional technology, at least today, is very much open. It's just a matter of you… as a company, want to take the risk. We've operated there a long time. I've lived there a long time, comfortable with Russia, and the people. And they have to be good economic opportunities for the company.

SS: Do you think it needs political change in Russia to improve over the medium term?

BD: Well, talking about political change is not a territory I'd ever wanna go into at all. I think there is a lot of misunderstanding … in the world, between Europe, United States and Russia… with Europe and the United States. I see this all the time. The rhetoric is inflammatory. A lot of the media coverage of it is inflammatory. 73 billion dollars of gas is being sold into Europe from Russia last year. Inextricably linked in terms of energy. 30 percent of Europe's gas comes from Russia. You just don't turn this off, and on. And I think…

SS: You can't blame the media for what vestiges it did… but for the European Commission to go to Gazprom and say you guys may have a monopolistic issue here as well… do you think the politicians at the Commission are actually going down the wrong line there?

BD: I think there are some very wise politicians. I do see some wisdom in Germany, some in the Commission, are thoughtful about the long term implications here. And I think, in energy, sometimes a minor frustration in energy… for all of us companies, are we make investments, we make decisions… for ten years… and sometimes, politicians have an 18 months to two year horizon to do something quickly but the implications of that comes much later down the road.

SS: Tell me about what's going on in the States at the moment. You and I have been talking about Macondo for a very long time. It's a very tragic situation… it's been very difficult for you to negotiate as well. Where are we in the whole process?

BD: Well it's a terrible accident. It's a really terrible accident. A big oil spill in the gulf… five years ago. At the time, I think there was concerns it was going to an environmental armageddon. I believe the company absolutely did the right thing, stepped up, enormous resources. 48,000 people on response around the gulf. We've sold 40 billion dollars of assets to meet our obligations. We've got 45 billion dollars provision – we know we have obligations in terms of fines. But you get to a point where you don't want all of the funds… shareholders money… going into just legal obligations. You have to question the investments, and so that's what we're… I'm asked all the time by shareholders.. why do you stay in the United States? We're deeply committed to the United States. Many of our roots are there. We're the largest acreage holder in the Gulf of Mexico. We've got 7,000 people working in Huston alone. So we're committed to that, and I just hope there's fair and reasonable outcomes.

SS: How's your relationship with the administration?

BD: It's ok. I mean it's not… the administration doesn't really meet with us and talk about this. It's really a legal process that we're working through. We're working through it. We've had to stand firm on some things and take an issue with some settlements. But it's in the courts now.

SS: Many people have of course talked about this ongoing crisis and one of the situations why BP might be susceptible to a takeover. Do you think BP's susceptible to a takeover?

BD: I don't think so. I think there is a lot of romance around those…. Of course in the late 90s, BP was a company in many ways, really grew in size and scale from acquisitions… into the United States and Germany, I think there's a lot of nostalgia for the late 90s… and lots of consolidation. But I don't see that happening. I think we're a deeply viable company.. with our balancesheet I see nothing but potential. We've got 15 major projects between now and 2020… so..

SS: But it's not nostalgia that led Ben van Beurden to buy BG, it was.. I see price at a certain level, I see a great deal and a great fit. So there are big deals that can be done… along the same lines of John Browne scale… you don't see BP taking part in any of those?

BD: I don't. I don't see us… I mentioned to one of your colleagues earlier in the year, I don't see us as a predator or prey right now. We need to get our own house in order. We need to work through and make ourselves much more efficient. Selling 40 billion dollars of assets has simplified the company enormously – huge price for it – to meet our obligations. So the company now has many many major projects between now and the end of the decade. There will be, undoubtedly, if oil prices stay lower, stress out there. Any industry.. there will be some consolidation. But Steve, I don't think that the world thinks that bigger is more beautiful. I think there is a lot of impediments to doing that.

SS: If you were Rex Tillerson – would you have run a slide rule over BP?

BD: Well, I suspect, everyone has. I mean after 2010, I think everyone did. No one really knew where the course of we were heading. Our gearing level are now down low, meeting our obligations, we're investing more than 20 billion dollars of capital a year. But no one knew what was going to happen to BP in 2010. And it was.. it was close. In terms of… at one point, our debt was difficult to trade. It was all the characteristics of what would happen for a company to just disappear. I think we've moved through that, sold the assets, trimmed the portfolio, put aside our obligations, and many people forget that we've lightened our investments in Russia by about half in 2013 and made the investment in Rosneft with the sale of TNK-BP. So I feel very good about the portfolio we've got.

SS: I remember speaking to you off camera about a year or so ago… what do you do in your down time. and you said to me… this is, this is a seven day a week job. Is it still a seven day a week job? And if so, is it still enjoyable?

BD: You know, when you work with a company like BP, it is like family. It's enormous commitment… the people in the company. Many of them have come from other companies, through the consolidation. But it's a great team to work with. It's really a committed team of people. All across the world, the management team is really focussed. So it's not unenjoyable. That's really satisfying. You know what it's like when you have a high performing team of people. You just know it feels right. And we're all deeply committed.

SS: The flak you get now, if it's Russia, if it's Macondo, if it's you've shut something in Aberdeen because you have to. Because the British government thinks you're doing XYZ, because you've made too much money. Because you've been paid too much money. Doesn't it get you down sometimes?

BD: Well you have to be resilient to that. This is not a world… (Steve: doesn't hurt at all?) I don't think… I think, a leader, no matter what your role is in business. I don't think having a thin skin would be a characteristic. You just sort of have to look through it, particularly in energy… look at the long term horizon. So - I enjoy what I do. But it doesn't actually shut off very much.

SS: It's not taken a toll?

BD: Not yet.

SS: You're gonna stay at BP for a long while?

BD: I enjoy it. It's a great team. No. No plans.