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BP Expanding in GOM Deepwater

As the supermajor gets back to business in the Gulf of Mexico (GOM) deepwater, one of its core areas, BP plc executives are hopeful that they can complete "in a few days" the $7.8 billion settlement tentatively reached last month with thousands of individuals and businesses that were impacted by the April 2010 Macondo well blowout, Chairman Carl-Henric Svanberg said Thursday at the company's annual meeting.

The settlement with the Plaintiff's Steering Committee would resolve a "substantial majority of legitimate economic loss and medical claims," according to BP. However, the London-based super major still faces claims made by the U.S. Department of Justice and other federal agencies, and it excludes securities and shareholder claims pending, as well as claims based solely on the deepwater drilling moratorium and the related permitting process.

BP plans to sell some of its stakes in older GOM fields as part of an ongoing divestiture program, CEO Bob Dudley told shareholders during the meeting. Pre-Macondo, BP was the biggest producer in the GOM, and it continues to be one of the biggest leaseholders.

Although Dudley didn't provide any details on what BP might be selling in the GOM, there are some fields it probably won't be selling, and in fact, is planning to expand.

The company now is operating five drilling rigs in the GOM and three more are scheduled to be moved to the deepwater this year, Dudley said. U.S. regulators last October gave preliminary approval for BP to drill four deepwater wells in Keathley Canyon, the producer's first offshore permit approval since the Macondo blowout. An appraisal well was spudded last November on the promising Kaskida field in Keathley.

In February BP (60.5%) sanctioned phase 2 of its Mad Dog spar platform, committing $1.8 billion to pre-operational drilling, and last week partner BHP Billiton (23.9%) ponied up $708 million. Chevron Corp. (15.6%) is the third partner. The new spar is to be installed on the southern extension of the field and capable of producing 120,000-140,000 boe/d.

Mad Dog, discovered in 2005 in Green Canyon Block 782 field, long has been one of BP's top prospects. Following successful drilling in an untested segment of the Mad Dog field, BP last year said the field's size likely was double previous estimates, with total hydrocarbons in place of at least 4 billion boe (see NGI, Sept. 12, 2011).

Up to 150 drilling and production personnel operate phase one of Mad Dog, which was designed to drill and produce from at least 12 wells simultaneously. The field's truss spar platform is designed to process up to 60,000 MMcf/d of gas and 100,000 b/d of oil. By comparison, BP's Thunder Horse facility in the GOM, currently the largest deepwater production unit in the world, has capacity to process up to 200 MMcf/d of gas and 250,000 b/d of oil.

A final decision to move forward with the second phase of Mad Dog is to be made by the partners in 2013; if the partners commit, production ramp up is scheduled for 2018.

"We are investing in exploration but divesting mature oil and gas fields that other companies can specialize in -- such as in the southern North Sea and some fields in the Gulf of Mexico," said Dudley. "The principle is to prioritize value over volume and quality over quantity."

But the GOM will remain one of BP's top priorities, said the CEO.

"The large number of turnarounds and the temporary cessation in Gulf of Mexico activity did affect our production," Dudley said. "But in October, as many operations came back onstream, production started to rise again and increased by 5% -- or 170,000 boe/d -- between the third and fourth quarters.

Since beginning its asset divestitures in 2010, BP plans to sell a total of $38 billion in global properties by the end of next year. Since 2010, BP has sold $23 billion in assets worldwide, Dudley noted.

"In the past we measured our success by barrels of hydrocarbons produced," said Svanberg. "We now measure success on the value we generate for you, our shareholders. We have therefore taken a hard look at our portfolio, disposing what has a higher value to others, seeking to release value earlier in the life of our assets. We are playing to our strengths. BP has always been one of the great explorers. We're now doubling our investment in exploration.

"It's a sign of confidence in our abilities that we were awarded over 300,000 square kilometers of new exploration licenses last year, a record in BP's history, unprecedented over recent decades."

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