LAGCOE 2017: Deepwater Gulf of Mexico E&P can be sustainable at less than $40/bbl, BP says

By Alex Endress, News Editor, World Oil on 10/24/2017

LAFAYETTE, La. -- The U.S. Gulf of Mexico’s E&P industry has been through tremendous hardship since crude dropped in late 2014, and it’s imperative that companies change business models to sustain future deepwater U.S. oil production growth, according to Ryan Malone, BP’s projects general manager for the Gulf of Mexico.

Delivering a keynote presentation at the 2017 Louisiana Gulf Coast Oil Exposition (LAGCOE), Malone said that BP is operating under its belief that oil prices will remain “lower for longer,” predicting that oil prices will likely trend close to $50/bbl for the foreseeable future. This conclusion has led the company to examine every aspect of its operations, and to cut costs by refocusing and re-engineering its Gulf of Mexico program. In 2017, Malone said BP was able to reach a cash break-even price of less than $40/bbl for its deepwater GOM business—half of what it was in 2014, he said. To do this, the company has reduced costs in many predictable areas, such as canceling high-cost projects, canceling rig contracts or lessening the cost or term of such contracts, and reducing workforce. However, BP also has implemented other strategies to gain cost reductions, such as working with operator partners to simplify and standardize operations, cooperating with contractors and suppliers to increase efficiencies, and investing in new technologies that can promote better productivity, said Malone.

Such strategies, while difficult, will be necessary for companies to survive in the Gulf of Mexico, he said. Indeed, the company is now able to reinvest $2 billion annually into its GOM operations, while production has increased 15%, year-on-year, since 2014, and production costs have dropped by more than 35%, according to Malone. “We haven’t done this alone—it requires operating discipline and a change of mindset with our employees, with our contractors and with our stakeholders,” he said.

At BP’s current cash break-even price of less than $40/bbl, he said that deepwater Gulf of Mexico operations can be competitive with tight oil in the U.S. land sector. Yet, not only development operations, but exploration operations also are becoming more viable. He noted that deepwater exploration wells have topped $200 million per well in the past decade, but that more recently, Gulf of Mexico exploration wells have been drilled for less than $100 million, and in some cases, less than $50 million.

Through all of BP’s costs reductions, one area that was not sacrificed was the company’s commitment to safety, Malone said. “We spent a lot of time on the front line, committing to our standard of safety,” he said. “We made sure that there was no real or perceived conflict with our team’s safety and the need to generate cash.” Malone advised companies hoping to stay competitive to adopt systematic approaches to improving and sustaining safe operations in the Gulf. “Safety is our number one job,” he said. “It’s about making sure that each person returns home, ready to change a diaper, coach a team to throw a ball, hoe the back 40, or care for an aging parent."

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