RDC’s 24th Annual Conference Presentations
Steve Marshall, President, BP Exploration (Alaska), Inc.
Some of you will remember a TV commercial BP ran in Alaska back in 1992. We ran it because even though we were Alaska’s largest oil producer, one of the largest employers and the #1 investor in the state for nearly 2 decades, many Alaskans were concerned that BP was getting ready to leave Alaska.
More than 10 years, $6 billion in investments and 1.5 billion barrels of net production later, some Alaskans are still wondering: Is BP still going to be here? (Holds up Yes sign)
In fact, with the strides we’ve made over the past couple of years toward making Alaskan investments competitive with opportunities around the world and creating new options on the North Slope, let me add this … to that: Holds up Exclamation Point sign)
For starters, we’ve reduced our unit costs … and we’ve set the stage for further reductions through new technologies, new efficiencies and belt-tightening.
We’ve increased our production by 13 % over the past two years… and we expect to sustain it at or near current levels for at least the next several years.
And we’ve done it without compromising our safety and environmental performance or the integrity of our operations … indeed, we’ve improved our HSE performance, based on the number of recordable injuries and incidents, and we’ve enhanced operational integrity by increasing our corrosion inspection and valve testing activities.
We’ve still got billions of barrels of known oil and gas resources in our Alaskan portfolio – more than anywhere else in the world. It’s enough to sustain production at current levels for the next 20 years. But it will require billions of dollars in new investments.
BP remains Alaska’s #1 investor, with a capital budget of more than $700 million for our Alaskan business in 2003 and an average of more than $650 a year for the next five years. That’s nearly as much as the State of Alaska spends on education.
On behalf of our partners and ourselves, we spend more than $1 billion in Alaska, with Alaskan companies, every year. And that’s more than the annual Permanent Fund dividend distribution.
We’re determined to keep working on our costs in order to make Alaskan investments competitive with opportunities around the globe and to identify projects that will help us to bring new barrels on line on the North Slope.
We’re leaving no stone unturned … so to speak. But where do we find these new barrels?
We’re looking “back to the future” … back to known resources we couldn’t recover economically in the past … and by applying new technologies and a new way of looking at things, we’re finding new barrels for the future.
Example: viscous oil.
During the ‘80s and ‘90s, industry invested more than half a billion dollars trying to tap this multibillion-barrel resource – a resource that may be larger than the Prudhoe Bay field itself in size.
But we couldn’t get the economics right, because the viscous oil overlying the Prudhoe, Kuparuk and Milne Point fields is cold and thick – the consistency of cold molasses – and the rock quality is poor, resulting in crumbling and damage to production equipment and facilities.
Recently, we’ve begun testing new drilling and recovery techniques that have reduced costs and improved productivity, and today, viscous oil accounts for almost 5% of all North Slope production.
With hundreds of millions of dollars in new investments we plan over the next several years, viscous production could more than triple by 2010.
Another more recent example: the Lisburne oil field, which underlies Prudhoe, and also holds 2 billion barrels of oil. The industry spent more than $1 billion developing Lisburne in the ‘80s, but the results were disappointing there, too, because the reservoir is limestone – harder than the sandstone in the main Prudhoe reservoir, less porous, more difficult to produce.
Lisburne peaked at less than half the rate it was expected to achieve. Projections for recovery were slashed, and recently it has produced only 10,000 barrels a day … with all but 10 of its 89 wells idle.
So we decided to look back … and see if Lisburne might have a future. We’ve tested new drilling and completion techniques on two wells this year, and the results have been promising with each of the new wells holding steady at more than 1,000 barrels per day, we’ve increased Lisburne production by 20% in the past year. We’re still learning lessons, and we plan to drill at least three more wells at Lisburne next year.
As with viscous oil, there’s significant potential at Lisburne – 2 billion barrels of oil in place, and only 7% of it has been produced.
It’s a little like the story of the three bears and their bowls of porridge … viscous oil is too thick, and the reservoir rock is too soft … at Lisburne, the rock is too hard … and at Prudhoe Bay, it’s just right. But with Prudhoe in decline, we have to look elsewhere to fill the gap.
Back to the future. If we can make it work – and that’s still an “if” – it will mean jobs and business opportunities for Alaskans, new revenues for state government and a stronger, more sustainable oil and gas industry in the state.
Alone, it won’t offset declining production on the North Slope. But combined with other incremental projects and an aggressive drilling program, it will play a key role in holding production steady for the next several years.
And after that? Possibly Liberty. Point Thomson. Gas commercialization.
We look forward to final passage of a federal Energy Bill that will reduce the enormous risks of our gas pipeline project, and we look forward to discussions with the state toward a clear and durable fiscal contract that supports the project.
There’s still enormous potential for Alaska’s oil and gas industry. Indeed, North Slope oil and gas are the single largest source of oil and gas resources in our entire global portfolio.
But to achieve our full potential, we must maintain our relentless focus on reducing costs and developing new technologies. Electrification of pump stations along the Trans-Alaska Pipeline will play a vital role in reducing the huge transportation costs for North Slope oil, and that will benefit everyone: the state, independent explorers and major producers alike.
Alaska and the industry must work together to create a fiscal and regulatory climate that encourages investment. Uncertainty over present, future, and even past fiscal and regulatory terms discourages investment.
Does BP have the resolve to face these challenges and to do everything within our power to overcome them?
Do we believe in Alaska’s long-term potential, and do we have the long-term commitment to pursue it?
When you wake up tomorrow, are we still going to be here?
The answer to each of those questions is “Yes !”
