The Last Barrel
In the depths of the Great Oil Bust that occurred in the second half of the 1980s, I was traveling with my family to celebrate the Thanksgiving holiday with my aunt and cousins in Enid, Okla. Before turning off the state highway onto the road into town, a drilling contractor had stood-up about 10 idle rigs by the side of the road. Each was freshly painted and had a brand new American flag flying on top of the derrick. The red, white and blue banners stood in striking contrast to the yellow/blue, red/white and green color schemes that had been artfully created on each unit. At the time, I reckoned it was a way of preserving the iron until drilling activity increased. In hindsight, I don’t think that notion was entirely correct.
Offshore Technology Conference. Houston’s premier trade-show kicked off May 1, with a topical breakfast led by Richard Morrison, BP regional president, GOM. His talk concentrated on methods to increase efficiency and safety when operating in deep water. Mr. Morrison said that during the price collapse of 2014-2015, he was forced to rewrite the company’s business plan, to ensure that the region could break even at $40/bbl. The initiative focused on cutting costs, and “we paused our exploration drilling program, terminated a long-term rig contract, allowed two others to expire and warm-stacked another. We also cut our fleet of service vessels and helicopters in half, and laid off 50% of our GOM administrative staff.”
But he said that with help from new technologies, deep water can be profitable at $50/bbl. In the last several years, BP has championed a new 3D seismic velocity model that enables geophysicists to “see below” the salt layer and accurately map formations once shrouded by NaCl structures common in the basin. The technique was developed by a young BP employee, who perfected a new method of processing existing data. Mr. Morrison also stated that “not all formations are created equal and today’s Miocene targets are tighter, hotter and under higher pressure than those previously completed, but improvements in BHA and BOP equipment are successfully solving these issues.”
Another significant cost reduction is being realized in constructing subsea tiebacks. Historically, it took between 36 and 48 months to produce first oil, but with revised methods and technologies, BP can install a subsea riser to a production structure in just 10 to 20 months.
Downsizing technology. In addition, to make the giant Mad Dog field profitable at $40/bbl, BP opted to use standard tools instead of higher-priced custom-designed systems. These cost cuts worked, and offshore crude output increased 15% while expenses declined 35%. But lower-for-longer was the general theme. Nonetheless, Mr. Morrison stressed that resurgence has begun, and the deepwater GOM can compete with onshore tight oil.
A friend like the industry has never seen. Donald Trump is the first sitting President in U.S. history that has had the courage to support and defend the E&P industry, outright. The U.S. economy has benefitted greatly, since the Standard Oil era going forward, from abundant supplies of low-cost fuel that have stoked our industries and pumped untold billions of greenbacks into federal coffers. Yet, not one previous President, including President Bush 41 and President Bush 43, came close to unleashing the torrent of legislation designed to encourage drilling and production that the Trump administration has proposed in the last 100 days.
First off, Trump ordered Interior Secretary Ryan Zinke to revise a five-year schedule for auctioning offshore drilling rights to include territories omitted by the previous administration. The order also seeks to reverse another old decision, and will include most U.S. Arctic waters and some of the Atlantic ocean for leasing and drilling activity.
Next, the administration ordered a study that will open Pacific waters off the coast of California to new drilling and production activity. Again, Secretary Zinke defended our industry and said, “we’re going to look at everything, including potential oil leases off the Pacific coast. A new administration should look at the policies and make sure the policies are appropriate.”
Zinke also told a group at OTC that “the U.S. is in the position to be energy-dominant, not just energy-independent,” and he plans to loosen drilling regulations. “If we, as a country, want to have national security and an economy that we all desperately need, than dominance is what America needs. My task is to look at where we’re going to make changes and recommendations across the board. The stars have lined up, so we can create energy jobs.”
API study. If further evidence is required, the API released a study that shows private investment in U.S. natural gas and oil gathering systems, and pipelines, could create one million U.S. jobs. Kyle Isakower, API V.P. of regulatory and economic policy said, “By 2035, if the right regulatory policies are in place, private investment could exceed $1.3 trillion for oil and natural gas infrastructure, and create more than one million jobs.” Mr. Isakower added, “Already, reliable access to energy has helped drive down utility, product and other energy-related costs, providing a $1,337 boost to the average American household in 2015.”
Offshore will thrive again. The push for energy dominance will, undoubtedly, be challenged by environmental groups that want to deny the American people abundant energy supplies and high-paying jobs that come with development. Katharine MacGregor, deputy secretary for land and minerals management in the U.S. Interior Department, said “We cannot achieve energy dominance without a vibrant offshore energy economy. We need to signal that new areas are open.” With the Trump administration standing with us, and the tenacity displayed by our industry leaders (and drilling contractors), we may be down, but certainly not out. 
