The future of oil: seizing the advantage
Global demand for oil continues to grow, but so does the challenge to produce oil competitively in a world of abundant resources and fast-advancing technology. BP's chief operating officer for developments and technology, James Dupree, explains why oil still has a significant role to play in the upstream strategy and how the portfolio focuses on 'advantaged' resources
The world used to worry about oil running out. Now oil resources are abundant and the worry is about using too much. What is the long-term future for oil?
The world will need oil for decades to come, to help meet increasing global energy needs as fast-growing parts of the world, such as China, India and Africa, prosper and the population rises. Oil has an important role to play in the fuel mix, alongside more gas and renewables, and we’re heading towards a world that will require 100 million barrels a day for the first time in 2018. But, we are going to have to be smarter about which oil we produce, how we produce it and how we use it.
Is that what BP means when it talks about pursuing ‘advantaged’ oil in the upstream in its strategy?
Yes, exactly, and there are a number of factors that contribute to those advantages.
Overall, it’s about oil we can produce at a higher margin or at a lower cost, and is therefore more resilient to whatever price environment we face.
From an investment perspective, an advantaged oil project means a short cycle time for development (from finding the resource to producing first oil) and a low development cost. Scale is important as well; we are usually talking about large-scale developments, and often in areas where we - or our partners - have existing infrastructure. Typically, we look for light oil (with a low density, this flows easier than heavier crudes) with a high deliverability. In other words, wells that produce at a high rate.
We believe that deepwater oil can still compete in this picture as well. We are sanctioning deepwater oil projects that are very cost-competitive. I often remind people that BP sanctioned some of its biggest deepwater projects, such as Thunder Horse and Atlantis, in a climate of around $20/barrel prices. We have thrived at low oil prices before and we can do so again.
Evidently, it’s important for BP to have a good balance of oil and gas in the upstream portfolio. And safety still remains at the very heart of everything we do; just because we’re talking about lower cost developments, nothing supersedes our safety agenda.
What are some of BP’s highlights in the oil side of its portfolio?
The majority of BP’s portfolio today is advantaged oil. We’re pursuing resources in regions where we have existing positions, for example by applying the latest seismic technology around our Thunder Horse field in the Gulf of Mexico and the Clair field in the UK North Sea.
We’ve recently won bids for two blocks in a light oil area offshore Brazil and we’re looking to develop those swiftly with our partners. Elsewhere, our renewal of a 10% interest in the Abu Dhabi ADCO onshore concession and the extension of the Azeri-Chirag-Gunashli (ACG) production sharing agreement with Azerbaijan out to 2049 are further examples of this oil strategy in action.
I also point to Alaska. BP has been working there for more than 50 years and, as such, it may not be the obvious choice to demonstrate our latest strategy. But, our Alaska region has done its work and the team is focusing its efforts on remaining competitive for the future. They are using advanced seismic, they are taking on the challenge to drill more efficiently and therefore more economically, and are applying enhanced oil recovery technologies to extract more from Prudhoe Bay – which actually began production back in 1977. The results have been fantastic; they have reduced decline, holding production almost flat - and the overall breakeven for the business is down by 40%.
Where do you see future opportunities for BP oil projects?
There are plenty more opportunities for continued exploration and, hopefully, developments in our incumbent regions. These include Brazil, on the Atlantic margin of West Africa - where we’ve made an alliance with Kosmos Energy - and the Gulf of Mexico still fits the bill. Mexico itself is a possibility where we’re still examining the licenses we’ve been awarded, as well as Eastern Canada.
We’re screening our exploration opportunities differently as well now.
Alongside our explorers, a team from our global projects organization gets involved much sooner than previously to understand if a discovery would fit our advantaged oil strategy. Right at the start, we study how much it would cost to develop a resource and whether it would be competitive in today’s world. We do not drill anything unless we have a concept for development that is viable - and economical.
What we call ‘frontier’ basins, such as the Great Australian Bight, are no longer competitive as they would require massive investment to develop resources in these remote, untapped areas where the industry has little or no existing infrastructure.
What are some of the technologies that are allowing BP to produce oil more efficiently?
We have a long track record with expertise in seismic imaging, but we are still making advances: not only improving data acquisition (by gaining more, better quality data) but in our computer processing abilities and our proprietary algorithms that allow us to interpret far more data in less time.
For example, in 2017 an algorithm created by one of our team helped us to see through layers of salt to uncover a new ‘field’ within our existing Atlantis field in the Gulf of Mexico that holds 200 million barrels of oil. It took just two weeks to process the algorithm in our supercomputer in Houston – whereas with 20thcentury technology, we estimate it would have taken well over 1,000 years.
In our wells operations, we’re aiming to improve the cycle time to drill and deliver a well and we’re applying new well-bore strengthening technology that allows our teams to safely reduce the time it takes to drill.
And, in reservoir management, for example offshore Trinidad, we’re deploying new digital tools to transform operations across the complex network of 14 production platforms there.
That new system allows us to simulate what will happen across the network during routine activities – such as wells starting up, valve testing and pipeline inspections – so we can optimize production.
Overall, our technology allows us to create a competitive edge in what has become a margins business. It can help us to improve safety, grow production and reduce costs.
Aside from technology, how is BP modernizing the way it works and what, if anything, does that modernization mean for staff and their skills?
Typically, when people talk about technology or modernization, you also hear a conversation on job reductions. A reduction in some types of jobs due to, for example, increased automation, is a trend across all industries – and the oil and gas sector is no different. But the best way to grow BP – and generate and protect jobs – is to make our business more competitive. We can do this by embracing new technologies to make us more effective, including lowering our costs which can help us expand our portfolio.
Modernization means working differently as well. We’re trialling some agile team working. What that means is using groups of people with the right skills to attack specific problems as they arise. This breaks down our organizational boundaries and overrides the organogram to get people working more nimbly. For example, in the past, you were in a certain team and assigned a certain area. In the future, people will move around to tackle tasks as they arise.
Some of our functional teams have always worked in this way, but we’re trying it in different areas, such as technology and exploration. We’ve seen examples where it works in other industries, and it’s already a technique that we employ in crisis management mode.
It is more exciting for our people because they experience a greater range of activities. It’s also exciting for the business as we can react faster to opportunities.
How is BP working with its partners, suppliers and contractors to find efficiencies and better ways of working?
In the last few years, we’ve made a transition away from bespoke engineering. We used to design a component specifically for a particular project. We’ve changed that approach to supplier-led solutions. For example, we’re building the Mad Dog Phase 2 project right now; we were originally going to construct a bespoke subsea tree – that’s a piece of equipment to sit on the completed wellhead where it monitors and controls oil and gas production. Instead, we went to our suppliers and asked ‘what tree has already been designed, engineered and is in existence that might work for Mad Dog?’
Our suppliers offer up the answers as they see many more examples than we do around the world of a particular component - we engage them early in the conversation, listen to their ideas and collaborate. This approach has changed the whole dynamic of how we work with others in the industry. I’m particularly excited about what we are doing on standardizing equipment – BP is actually leading a joint industry project, called JIP33, with a goal to create potentially 200 standardized specifications by 2025 to improve safety, quality and reliability.
What results are you seeing from this Upstream agenda?
Thanks to new technologies and modernizing the ways we work, there are examples across our business where our teams are getting more low-cost oil out of our existing reservoirs. Over the past five years, we maintained our base decline at less than 2.5% by improving reliability of our facilities and delivering valuable well work. These signals tell me we have the right approach to sustain a resilient business that is fit for the future.
