BP plc is running 12 rigs in the U.S. onshore today, more than at any time since 2012, and the decision to restart development in some neglected basins has begun to show material improvement, CEO Bob Dudley said Tuesday.
"It's early days, but the decision to manage our Lower 48 business differently is starting to show material improvements in performance and competitiveness," he said during a conference call to discuss 3Q2015 results. Management spent more than two hours not only discussing results but laying out a strategy through 2017 that involves more cost cutting and a forecast of lower-for-longer commodity prices.
Last year BP officially began to turn around its U.S. onshore business and it hired former SandRidge Energy Inc. COO David Lawler to lead the unit (see Shale Daily, Aug. 20, 2014).
"The fact is, the acreage has been under-worked," said upstream chief Lamar McKay. "We were down to two rigs in 2014...it had not been worked hard for 10 years. Now we are working it hard, and we've been demanding of the team to get the costs competitive basin by basin, and we're pretty much there."
Capital execution and efficiencies have enabled returns that "are competitive with the rest of the portfolio," McKay said. "I'm happy to say the experimental phase with a new leadership team is doing a bang-up job."
The Lower 48 team was given a gift bigger than most companies have, with material resource base of 7.5 billion bbl across 5.7 million net acres. The transformation actually was launched in house about 18 months ago, with the team given a mandate "to focus on safety, innovation and performance in a way that is fit for purpose in that business," Dudley said.
Considering commodity prices, the operations have done well by doing using techniques similar to other onshore operators. Drilling innovations have lowered costs and oilfield service companies have cut deals.
"Year to date unit cash costs are about 17% lower than last year," Dudley said. "And we are seeing improved capital efficiency through some real innovations in well design and execution...This means the activity is delivering improving, competitive returns," competing for investment with the rest of portfolio of drilling opportunities.
"The team is also focused on optimizing the portfolio, both through re-energizing the element of previously underworked acreage and also by selectively screening opportunities that may complement existing assets," he said.
BP now benchmarks its onshore development costs across the onshore regions and against competitors, as well as against previous performance in the same plays.
This year BP returned to its legacy holdings in the San Juan Basin, a gassy asset that was spurned for international opportunities years ago.
"In the San Juan, we are seeing significant reduction in development costs compared to the last time we drilled in the basin back in 2009," Dudley said. Gas wells in San Juan now "are being developed at a cost of 45 cents/Mcf." The company's first dual-lateral well in the San Juan also is showing "encouraging early performance."
Another revamp is ongoing in the Woodford Shale, and so far this year, development costs "are half of what they were in 2012."
The plan now is to "embed the cost benefits to ensure the cost reset is truly sustainable and that the legacy of the current environment is a permanently leaner and efficient business."