In 2008, BP successfully replaced 121% of its reserves, adding 1.7 billion new barrels of oil to the company's portfolio. Proving why it is considered a super-major, it was the 15th year in a row that BP has been able to perform this feat. BP, in fact, was the only in its class that was able to boost its production during 2008.
"From existing projects we now expect to grow production to 2013, and we have the potential for continued growth right out to 2020 at an average annual rate of between 1 and 2%," Tony Hayward, BP group chief executive, recently said of the company's strategy. "Combined with our reserves replacement of 121%, that's a great record to be able to cite in this, our centenary year, because it suggests that BP has not lost its traditional skill with the drill bit."
Focusing on the company's past, current and future offshore rig contracts and activity, it is clear that the BP is committed to growth through both development and exploration, as well as to keeping costs down.
Current Rig Activity
With 14 offshore rigs currently working for BP, the company is focusing on both exploration and development drilling. The company has made recent hydrocarbon finds in the US Gulf of Mexico, North Sea, West Africa and Mediterranean, while also bringing a number of developments into production, including a major Caspian project, one in the Mediterranean and another in the GOM.
As of May 2009, BP has five rigs working in the US Gulf of Mexico, three in the North Sea, two in West Africa and two in the Caspian, as well as others positioned in the Mediterranean and South America.
In West Africa, the company is continuing to drill discoveries on Block 31 offshore Angola, as well as implement the first of four development phases planned on the prolific block, PSVM.
Additionally, BP recently became the largest producer in the US GOM with a production ramp up at Thunder Horse. Further drilling is currently under way at the already producing Atlantis in the GOM, as well. With production starting in April 2008, development drilling is also ongoing at Gunashli in Azerbaijan.
Over the last five years, BP contracted a total of 48 offshore rigs. With 22 rigs each, jackups and semisubs were the rig of choice for the company in the past. Of the 48, only four were drillships.
The geographical break-up of where these rigs were working illustrates the company's exploration and developmental priorities at the time. Although some rigs changed locations during the contract, the majority of the rigs were concentrated in the US GOM, with 21 rigs working in the area.
Another main area, the North Sea had 10 rigs working for BP over the five years. The next highest number of rigs was positioned in Asia Pacific, West Africa, the Mediterranean and South America. Additionally, BP had rigs working in the Caspian, and offshore Brazil, Russia and Turkey.
Future Rig Activity
Looking forward two years, BP has contracted an average of nine rigs in 2010 and eight rigs in 2011. The large majority of the rigs contracted for far are floaters, with 13 semisubs and five drillships. Reflecting the industry trend of shorter lead times for jackup contracts, BP currently only has four jackups contracted for work in the next two years.
Again, the majority of the rigs slated to work for BP in the next two years are heavy in the US GOM, with the next focus remaining the North Sea. West Africa and offshore Egypt are both scheduled to have three rigs working in the area during the next two years, and the company will continue to employ rigs in the Caspian and Trinidad & Tobago.
In the last two years, BP signed contracts for six rigs, most of which are floaters with capabilities ranging from mid-water to deepwater. Of those, two deepwater rigs are slated for both the US Gulf of Mexico and West Africa. Additionally, BP has contracted a mid-water floater for work in Asia Pacific and another for work in the North Sea. The company continues to work offshore Trinidad & Tobago with a jackup scheduled for the area.
Although BP has committed to rig contracts in the future, the company has not signed as many contracts as others, particularly Brazilian major Petrobras. A primary reason for this is that the company did not want to obligate itself to pay the mounting dayrates of the last two years.
"We began our drive in 2007 to counter the cost inflation that had developed alongside rising oil prices," said Hayward. "As a result we managed to halt the inflationary trend and to hold costs flat in 2008, despite the continued rise in oil prices for most of the year."
"Our aim this year is to begin rolling back the inflationary trend and drive deflation into the business," he added. "We expect our costs to fall by around $2 billion in 2009."
With spending expected to reach $20 to $21 billion in 2009, BP's strategy will help to reduce costs this year by 10%.
While dayrate prices have not fallen drastically for the deepwater and ultra-deepwater floater segment, jackups have seen lower dayrates mirroring the lower price of oil. Knowing that BP will try to take advantage of falling offshore rig dayrates, it is probable that the company will begin to hire more rigs if and when the dayrates for floaters drop.
Until then, the company has a solid portfolio of offshore rigs strategically located worldwide on both development and exploration projects; and with such robust reserves, the company has positioned itself for success not only now, but in the future, as well.
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