BP plc on Thursday sanctioned a “leaner” $9 billion Mad Dog Phase 2 project for the Gulf of Mexico, which it said highlighted its long-term commitment to the country "despite the current low oil price environment."
The second phase of Mad Dog, whose cost has been trimmed by 60% from original estimates, would include a new floating production platform with the capacity to produce up to 140,000 b/d gross of crude oil from up to 14 production wells. Oil production is expected to begin in late 2021. The second Mad Dog platform is to be moored about six miles to the southwest of the existing Mad Dog platform, which is in 4,500 feet of water nearly 190 miles south of New Orleans. The current platform has the gross capacity to produce up to 80,000 b/d of oil and 60 MMcf/d of natural gas.
BP's final investment decision (FID) for Mad Dog Phase 2 had been expected by the end of this year.
"This announcement shows that big deepwater projects can still be economic in a low price environment in the U.S. if they are designed in a smart and cost-effective way," said Group CEO Bob Dudley. "It also demonstrates the resilience of our strategy which is focused on building on incumbent positions in the world's most prolific hydrocarbon basins while relentlessly focusing on value over volume."
In early 2014, when oil prices were soaring, BP had a record 10 deepwater rigs working in the GOM and planned then to increase output in the U.S. offshore by one-half through 2016, to 300,000 boe/d from 200,000 boe/d. Like its peers, capital spending has fallen across the globe, but the long-term projects, such as those in the deepwater, have remained mostly stable.
BP, which has a 60.5% stake in Mad Dog and is operator, with co-owners BHP Billiton (23.9%) and Chevron U.S.A. Inc. affiliate Union Oil Company of California (15.6%), three years ago decided to re-evaluate Phase 2 after an initial design proved too complex and costly.
Since then, the co-owners and contractors worked to simplify and standardize the platform's design, reducing the overall project cost by about 60%. Today, the “leaner $9 billion project, which also includes capacity for water injection, is projected to be profitable at or below current oil prices,” executives said.
"Mad Dog Phase 2 has been one of the most anticipated projects in the U.S. deepwater and underscores our continued commitment to the Gulf of Mexico," said BP's Richard Morrison, president of the GOM business. "The project team showed tremendous discipline and arrived at a far better and more resilient concept that we expect to generate strong returns for years to come, even in a low oil price environment."
BHP and Chevron haven't yet issued FIDs for Mad Dog Phase 2, but they are expected to agree to the project "in the future," BP said.
Mad Dog was discovered by BP in 1998 and began production with its first platform in 2005. Continued appraisal drilling in the field during 2009 and 2011 doubled the resource estimate of the field to more than 4 billion boe, spurring the need for another platform at the field.
BP plans to add 800,000 boe/d net of new production globally from projects starting up between 2016 and 2020. The United States remains central to its global business strategy, as the supermajor has a larger economic footprint in the country than in any other nation, and nearly 40% of its shares are held in America. BP also employs more people and invests more in the United States than anywhere else.
BP has been the largest investor in the GOM deepwater in the past decade, and it remains one of the largest leaseholders with about 400 lease blocks. Between 2013 and 2015, BP's average output from the U.S. GOM increased to 249,000 boe/d from 189,000 boe/d.
Including Mad Dog, BP now operates four large production platforms in the region -- Thunder Horse, Atlantis and Na Kika -- and it holds interests in four nonoperated hubs -- Mars, Mars B, Ursa and Great White. Earlier this year BP launched a major water injection project in the Thunder Horse field to recover another 65 million boe. A Thunder Horse South Expansion project also is underway, which would add a subsea drill center roughly two miles from the platform.