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BP to Oversee Lower 48 Operations From Denver, in Nod to Legacy Operations

BP plc is expanding its U.S. presence, establishing its Lower 48 headquarters in Denver to be near substantial assets in the Rocky Mountains, which are expected to return as an "important energy hub of the future."

U.S. activity up to now has been overseen from Houston, but adding a domestic headquarters in Denver highlights the Lower 48 states' "continued momentum, despite the current challenging energy price environment," management said. The move West also would mark a return to the Rocky Mountain energy hub, where legacy BP operations once held a significant presence.

"In some ways, this is a homecoming for us," Lower 48 CEO David Lawler said. The former COO of SandRidge Energy Corp. and younger brother of Chesapeake Energy Corp. CEO Doug Lawler joined BP in 2014 to run the Lower 48 operations.

BP has been the reigning North American natural gas marketer for years, and while most of the headlines in recent years have been focused on the Gulf of Mexico, U.S. onshore development, weighted to natural gas, has quietly and efficiently expanded.

During the 3Q2016 conference call in early November CFO Brian Gilvary said the company was running about five rigs in the U.S. onshore, down from 11 in the year-ago period.

"We're continuing to reduce costs in that business, which is bringing the breakeven prices down," Gilvary told investors. "The key is really about what we learn about technology and how we run the business." BP is running its Lower 48 operations within "a different financial frame to the rest of the group...and it is continuing, as you'll see from the various quarterly numbers that we now start to release, to be more and more profitable going forward...

"Lower 48 really is about testing new zones, looking at innovative well designs,” Gilvary said. “It's really experimenting with that business and getting more comfortable with how we run the Lower 48 and reducing costs over time and the amount of capital that's going in..."

Management elected to separate the Lower 48 business in early 2014 as it moved to react more swiftly to onshore developments, keyed by unconventional and tight plays. BP's Lower 48 operations two years ago consisted of 5.5 million developed acres, 21,000 wells and a net resource estimated at 7.6 billion boe.

The U.S. onshore operations now span Colorado, New Mexico, Oklahoma, Texas and Wyoming, as well as seven oil and gas basins, covering an area roughly the size of New Jersey. Average daily net production is 300,000 boe. Western development is centered in the Wamsutter formation and San Juan Basin, where BP has been the biggest operator since the 1920s.

The Lower 48 unit now is the largest operator in the Colorado portion of the San Juan, where BP has interests in 1,300 wells. About 30% of Lower 48 production is from the San Juan, which contains one of the largest coalbed methane reservoirs in the world. How important is San Juan? Last year the supermajor snapped up all of Devon Energy Corp.'s San Juan assets, which included 480 wells across 33,000 gross acres, marking BP's first major acquisition in seven years. San Juan operations now are based in Durango, CO, and Farmington, NM.

"With two thirds of our operated oil and natural gas production and proved reserves in the Rockies, world-class universities nearby and a wealth of industry expertise in the region, Denver is a logical -- and strategic -- place for us to be and a natural fit for our business," Lawler said.

Also under development by BP in the onshore are the Anadarko and Arkoma/Woodford basins, and the Eagle Ford, Fayetteville, Haynesville and Utica shales.

As it prepares for a new operating base, BP has signed a lease for 86,000 square feet of office space in the Riverview building in the Lower Highlands district near downtown. The headquarters, expected to open in early 2018, initially would house at least 200 employees, including the executive leadership team. More staff would to be added later.

Lawler said BP was looking forward to becoming "a bigger part of the Denver community and state of Colorado."

Several employees in Houston would relocate to Denver, with others remaining in Houston to manage the substantial operating assets in Texas. Over the past 10 years, BP has invested more than $90 billion in the United States and it employs about 14,000 people across the country.

"Houston will remain a large and important center for our business, and we have no plans to change that," Lawler said. "The same is true for Oklahoma City, which will remain a key hub for managing our assets in the Midcontinent region. However, we believe this is another important step on our path to become a premier onshore operator and set it up for long-term success."

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