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Do call it a (deepwater) comeback

Written by  Audrey Leon Thursday, 11 May 2017 07:41

Gulf of Mexico operators BP and Murphy Oil sing the praises of a new below US$50/bbl breakeven world at this year’s OTC Houston. Audrey Leon reports.

Image of Morrison presenting at OTC. Images from OTC.

If one had to choose an official anthem to encapsulate this year’s Offshore Technology Conference, it would have to be the Journey classic, “Don’t Stop Believin.”

While in previous years, attendees and speakers put on a brave face, this year’s event featured operators such as BP and Murphy Oil singing the gospel of a new competitive deepwater business at US$40/bbl.

“Shale cannot meet global demand,” said Roger Jenkins, CEO, Murphy Oil, at an OTC panel entitled, “Deepwater still works!” He continued: “Shale cannot compete. Now is the time for deepwater to comeback.”

Jenkins shared that Murphy plans to ramp up its global exploration. “Now is a good time to do that because there’s less competition, lower costs, better terms,” he said.

BP’s Gulf of Mexico Regional President Richard Morrison sung deepwater’s praises during his session, “A Fresh Look at the Gulf of Mexico.”

“The economics for deepwater investments make as much sense today as they did back in 2001 when BP sanctioned Thunder Horse,” he said.

For some independents, the offshore business is integral to cash flow. “The offshore business primarily provides cash for onshore to grow,” Jenkins said. Anadarko announced a similar strategy when the Houston-based firm purchased the offshore assets of Freeport-McMoRan for $2 billion last year, which at the time, CEO Al Walker said would allow the company not only to grow in the Gulf of Mexico, but to add rigs to its onshore shale acreage.

Jenkins added that Murphy has a competitive advantage by being in offshore with half of its production coming from there. And, even Morrison noted during his session that there have been notable companies that have chosen to leave deepwater, such as ConocoPhillips, Marathon, and the aforementioned Freeport-McMoRan – which had come into the Gulf of Mexico with much gusto after a combined $9 billion purchase of Plains Exploration and Production and McMoRan exploration in 2012. But, the times (and priorities) have changed for some. Others have dug their collective heels deeper.

Making changes

Morrison discussed how BP set out to fundamentally change to the business to make money during these “lower for longer” times.

“The challenge for all of us, in the short-time, was to breakeven at $40/bbl and continue our journey on process and personal safety,” he told the OTC crowd.  “And, not to give up on the long-term potential of this basin and reset our overhead with a shift in mindset.

“We refocused and paused our exploration drilling program,” he said. “We terminated a long-term rig contract, allowed two others expire, and warm-stacked another. We reset our approach to logistics. We nearly halved our fleet of vessels and helicopters, and nearly halved our Gulf of Mexico workforce since 2014, primarily onshore.

“We worked closely with our third-party suppliers to capture deflation in the market and other efficiencies,” he added. “We continued investment to boost our operating efficiencies of our production wells and our facilities. We tripled investment in well work to generate cash in the short-term. We listened to our teams and contractors and reduced the BP requirements when we were bidding for new equipment and services.”

Morrison said BP is more profitable now than the $100/bbl+ days.

“Today our cash margins in the Gulf of Mexico are better than they were when the price of oil was $80/bbl,” he said.  “Because costs have come down and continue to decrease. Execution and operational efficiencies have improved substantially.”

Technology

Image of Yielding with a chunk of salt.

BP also embraced new technology, Morrison said. Just days before OTC kicked off BP announced a breakthrough in seismic imaging that could help identify more than 200 MMbbl of additional resources at BP’s Atlantis field in the deepwater Gulf of Mexico, and aid drilling accuracy not just in the Gulf of Mexico, but in other regions as well.

The technology can enhance the clarity of images collected during seismic surveys, particularly areas below complex salt structures which were previously obscured or distorted. In a separate panel devoted to BP’s Mad Dog development, Cindy Yeilding, senior vice president, BP, held up a hefty chunk of salt to drive the point home about the new technique’s usefulness.

Morrison told the OTC crowd that there’s much more to be done. “A much-needed step change is already underway related to the cost of exploring for new resources,” he said. “Through a combination of fit-for-purpose design, execution efficiency, and some of the reduced rig rates we have seen recently, we’re are seeing some really good things.

“For example, the average cost to drill an exploration well in the Gulf of Mexico rose to $200 million this decade. We have now seen multiple wells drilled in this industry under $100 million and as low as $50 million.

“This is transformational for the exploration and production business.”

Safety

Seven years after the deadly Deepwater Horizon accident in the Gulf of Mexico, BP has made sure to drive home that safety is a core part of the business.

“My leaders spent a lot of time on the frontline reinforcing and re-emphasizing to people if there was a perceived conflict between safety and generating cash that there’s no doubt that it is safety, not cash,” Morrison said.

Murphy Oil’s Jenkins echoed Morrison’s sentiments on safety, saying “Safety performance is a key to overall performance.”

Betting on Mexico

At OTC, Jenkins expressed Murphy Oil’s excitement to explore Mexico’s frontier deepwater Gulf of Mexico.

In December, Murphy Oil won Block 5 (operator, 30%), in Mexico’s deepwater Salina basin, in consortium with Ophir (23.33%), PC Carigali (a subsidiary of Malaysia's Petronas - 23.34%), and Sierra Offshore Exploration (23.33%).

The block covers 2573sq km in 848m water depth, with an estimated 467 MMboe. Jenkins called the basin in which the block is located “prolific.”

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