Offshore drilling prospects dim amid productivity focus
The annual Offshore Technology Conference in Houston is one of the premier expositions of breakthroughs that enable oil and natural gas producers to reach deeper into the ocean faster, cheaper and safer.
Unfortunately for the vendors displaying new implements at NRG Park this past week, the prolonged downturn in oil and gas prices makes it difficult for producers to expand their tool kits when they’re cutting investments and personnel.
Bernard Looney, the chief executive for BP’ s global upstream operations, acknowledged as much in his presentation at the event.
“How will all of this play out? Quite honestly, it’s hard to tell,” Looney observed, echoing sentiments of his peers around the world.
Still, an important lesson is emerging for the industry, even as it draws its belt ever tighter, according to Looney, whose remarks were posted on BP’s website.
Now, more than ever, improving productivity is essential, not only to make money at lower prices but also to compete effectively with up and coming forms of energy, like wind and solar energy, and electric vehicles.
“Hydrocarbons have been unchallenged on cost for a long time,” he said. “But the competitiveness of alternatives is improving. They may represent a small part of the energy mix, but we cannot afford to ignore them.”
Looney isn’t losing faith in his industry’s ability to recover. He cited a BP forecast that oil and gas will meet more than half of the world’s energy needs in 2035.
He warned, however, that oil and gas companies can’t afford to play down progress among energy alternatives, especially as demands for lower-carbon energy gain ground around the world.
“Electric vehicles are scaling up quickly as they drive down costs,” Looney said. “The Tesla Model 3 will go over 300 miles on a single charge, and over 300,000 people put their money down for one in the first week after it launched earlier this year.”
Meanwhile, the cost of onshore wind electricity has fallen by half since 2009, while prices for solar manufacturing are down by three quarters over roughly the same time, he noted.
For BP and other oil and gas companies, the experience has historically been different.
“In most industries, such as manufacturing or aviation, costs come down with time,” Looney said. “In oil and gas, specifically the upstream, costs tend to follow the oil price and in general have trended upwards over time. We need to change this.”
The good news for oil and gas producers is that the U.S. shale boom is sending a message about productivity with its surprising resilience.
“If you look at sector production overall, since November 2014, the U.S. onshore (drilling) rig count has fallen from 1,865 to 420, almost 80%,” he said. “And yet production is pretty much the same as it was then.”
At BP, development costs for wells in the San Juan Basin in Colorado and New Mexico are down 60% in the last few years.
“This is continuous improvement in action,” Looney said. “We need to learn what we can from this phenomenon across the industry. We need to challenge what we’re doing and learn to adapt. We need to adopt a fundamentally different mindset.”
For the oil patch, that may be the best thing that can be said about hard times.
Bill Loveless — @bill_loveless on Twitter — is a veteran energy journalist and television commentator in Washington. He is a former host of the TV program Platts Energy Week.