BP doubles down on deepwater in disaster's wake despite surging shale

REUTERS
THUNDER HORSE OIL PLATFORM
Published 27.06.2017 23:59
Updated 28.06.2017 00:00
An explosion on BP’s mobile offshore drilling Deepwater Horizon rig, located in the Gulf of Mexico April 20, 2010, triggered the worst oil spill in U.S. history.
An explosion on BP’s mobile offshore drilling Deepwater Horizon rig, located in the Gulf of Mexico April 20, 2010, triggered the worst oil spill in U.S. history.

Seven years after its Deepwater Horizon explosion and oil spill, BP is betting tens of billions of dollars on the prospect that it can slash the costs of offshore drilling by half or more just as shale oil producers have done onshore

About 300 BP workers commute 150 miles here by helicopter, from the Louisiana coast to a deep-sea drilling platform that can produce more oil in a day than a West Texas rig can pump in a year. On the deck of Thunder Horse, they work two-week shifts, drink seawater from a desalination plant, and eat ribs and chicken ferried in by boat. On the ocean floor, robots provide remote eyes and arms as drills extract up to 265,000 barrels per day.

"There's a whole city below us," said Jim Pearl, Marine Team Leader on the platform.

This is just one of the four Gulf of Mexico platforms on which BP has staked its future in U.S. oil production.

Seven years after its Deepwater Horizon explosion and oil spill, BP is betting tens of billions of dollars on the prospect that it can slash the costs of offshore drilling by half or more - just as shale oil producers have done onshore. The firm says it can do that while it continues to pay an estimated $61 billion in total costs and damages from the worst spill in history - and without compromising safety. BP's Gulf platforms are key to a global strategy calling for up to $17 billion in annual investments through 2021 to increase production by about 5 percent each year, Chief Executive Officer Bob Dudley recently told investors.

"Our strategy is to take this investment that we spent so much money building, and keep it full" to the platform's capacity, Richard Morrison, BP's regional president for the Gulf of Mexico, told Reuters during the first tour of a BP Gulf drilling platform since the disaster. "We're also exploring for larger pools of oil."

BP's deepwater double-down is all the more striking for the contrast to its chief competitors, who have cooled on offshore investments in light of the lower costs and quicker returns of onshore shale plays. While BP has some onshore U.S. developments, the firm is notably absent from the industry's rush into shale oil fields of the West Texas Permian Basin. Majors including Exxon Mobil Corp, Chevron Corp and Royal Dutch Shell have maintained Gulf operations but focused expansions on U.S. shale. Exxon Mobil doubled its acreage in the Permian in a deal earlier this year. Freeport-McMoRan and Devon Energy Corp have pulled out of Gulf drilling entirely in recent years. Anadarko Petroleum Corp took a $435-million dollar write-down in May on its Shenandoah project in the Gulf, deciding it could not profit with oil prices hovering at about $50 a barrel.

"In a $50 to $60 world, we always felt like greenfield development, in the Gulf in particular, was fairly challenged," Anadarko CEO Al Walker told investors last month.

Oil prices dropped steeply last week, settling in the low $40s per barrel.

BP says its next Gulf development - the $9 billion Mad Dog phase two - would be profitable even at $40 a barrel. As recently as 2013, BP reported that it could not start new deepwater Gulf projects at prices lower than $100 a barrel.

In time, BP's offshore expansion could produce a huge payoff. The firm announced last month that it had discovered an additional billion barrels of oil below its four audaciously named Gulf platforms - Thunder Horse, Atlantis, Na Kika and Mad Dog.

The find - worth more than $40 billion at today's market prices - amounts to more than three times the proven reserves at the Na Kika field, or the equivalent of three new fields in the Gulf. BP's big new discovery is key to its slashing of estimated per-barrel costs, as are a host of drilling innovations and more favorable deals with service providers.

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