Focus on Relentless Improvement Needed for Big Oil's Success in Shale

“You still need a return on investment for shareholders,” said Skaufel. “With money comes a lot of accountability. But you need autonomy; otherwise, you die.”

Skaufel credits BHP’s “rigorous” methodology with helping it organize its U.S. portfolio and deciding which assets it should focus its drilling efforts and which it should defer. For each operated well, the company calculates the optimum timing to deliver maximum value, using forward price projections and cost learning curves. Capital is then allocated basis based on this analysis, while accounting for acreage retention requirements; operational capability; competing non-operated opportunities, appraisal and land capture objectives, and capital availability.

“At one point in time, we were running 45 rigs in U.S. shale; today, we’re running 25, and drilling as many wells with 25 rigs as we did with 45,” Skaufel commented.

Over the past year, the company’s costs also have come down, now that it is taking time to analyze data and improve. BHP’s organizational capacity – and the finite technical resources available in Houston – also makes it difficult to operate at higher rates even with good investments. BHP’s shale division now employs over 2,000 people, the majority of whom were recruited externally over the past three years.

BHP will invest $4 billion a year in U.S. onshore shale plays through the end of the decade. The company, which holds 1.5 million net acres in North America, is one of the most active operators in North American shale plays, and is Schlumberger’s largest North American customer, said Skaufel.

BHP is primarily focused on shale liquids production, with 75 percent liquids growth year over year. The company’s current liquids production represents about a third of its 330,000 bopd U.S. onshore production; BHP will double liquids production by FY 2017. BHP’s gas production has declined due to its focus on liquids.

BHP is most active in South Texas’ Eagle Ford play, where 17 of the 25 rigs it has running in North America are operating. Approximately 75 percent of the company’s fiscal year 2014 onshore U.S. drilling activity is focused on the Eagle Ford. BHP has 14 rigs drilling and most of its technical work focused on its 58,000 net acre position in the Black Hawk portion of the Eagle Ford. The company is running three rigs at Hawkville, where it is focusing on the liquids window.


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