The presence of industry heavy hitters like BP’s chief executive, Bob Dudley, at Adipec, Abu Dhabi’s big annual oil and gas gathering, underlines the growing importance of the region to the traditional oil majors.
Mr Dudley said he and fellow top BP executives met this month to look ahead at the next decade and some 50 projects that are in various stages of planning and development. While the Gulf of Mexico, Angola, the Chirag project in Azerbaijan and others in the North Sea loom large, he says the Middle East is a growing part of the portfolio after a period of declining importance.
“We have very big projects in Angola, Azerbaijan, Gulf of Mexico and the North Sea, but for us the Middle East is a big commitment,” Mr Dudley said. “Look back five years ago, it was starting to shrink. Now, we have Rumaila in Iraq. We are also in discussions with the government in Iraq on Kirkuk. Oman has come out of nowhere in a relatively short time.”
Abu Dhabi also remains a prime focus. “We’ve worked in Abu Dhabi for a long time and we’d really like the privilege of helping to steward the crown jewels of the country with the concessions, should it head in that direction,” Mr Dudley said.
BP, like the other former onshore concession holders, is on tenterhooks waiting for Abu Dhabi’s Supreme Petroleum Council to announce new 40-year contracts. The process has been going on since last autumn, longer than expected.
The company’s results last week showed the vulnerability of some of its other operating environments, especially Russia, where BP’s share of Rosneft’s third-quarter earnings fell by more than 85 per cent, mainly on the weakness of the rouble.
Overall, BP’s earnings were down by 18 per cent for the quarter, at $3 billion compared with a year earlier, although Mr Dudley said it remains on target to hit its ambitious free cash flow target of $30bn for the year as it continues to recover from its Deepwater Horizon rig disaster in the Gulf of Mexico nearly five years ago.
However, BP’s upstream production in the third quarter was down by 2.7 per cent from a year earlier. This was primarily because of the expiration of the company’s concession in Abu Dhabi, which gave it a 9.5 per cent share of Adco, the main onshore oil operating company.
Taking Abu Dhabi out of the equation, BP’s production grew by about 4 per cent compared with last year, with the ramp-up of liquefied natural gas in Angola, the expansion of the Atlantis North oilfield in the Gulf of Mexico and North Rankin 2 in Australia.
BP is among those companies pressing the case that Abu Dhabi will benefit considerably from the technology, expertise and deep experience they can offer. Mr Dudley puts this in terms of dollars and cents: “I was talking to someone from Abu Dhabi the other day who said that an additional 1 per cent recovery from the reservoirs is worth some $200bn of value to the country. So if you could increase by 5 per cent that is a staggering number, a trillion dollars of value for the nation.”
Hitting those ambitious targets will come primarily from enhanced oil recovery techniques, which companies such as BP have developed by managing huge fields over a long period of time. “One of the great trends in petroleum engineering is enhanced oil recovery and getting more oil out of existing giant reservoirs,” he said. “I would expect that would be the kind of factors people in Abu Dhabi will look at.”
Abu Dhabi has about 6 per cent of the world’s proven oil reserves, at approximately 100 billion barrels.
The management of oil reservoirs has grown immensely as computing, chemistry and engineering techniques have reduced the time it takes to evaluate and act on information from years to days. That has doubled the rate of recovery at oilfields, including the giant ones that have their own operating challenges and are of primary concern to Abu Dhabi, which has targeted a doubling of recovery rates to 70 per cent.
“When I started in the industry, the rate of recover was about 35 per cent and that’s what everybody thought was the limit. We’re already around 60 per cent recovery rate in Prudhoe Bay [in Alaska, the largest oilfield in the US]. So I think those targets are reasonable here,” said Mr Dudley. “There is probably more oil locked in existing reservoirs than we have found in all the new reservoirs.”
BP’s most important project in the region, the Rumaila field in southern Iraq, also has leaned heavily on the company’s large field enhanced recovery capabilities. In September, Mr Dudley visited the field and signed a new deal with the government there to target a lower plateau production rate – previously it had targeted 2.8 million bpd peak plateau production but Iraq has reduced this to 2.1 million bpd, which is expected to be reached by 2020 and continue on through 2034. The original overall would have made Iraq the largest oil producer in the world at more than 12 million bpd.
Currently, the production rate at Rumaila is 1.4 million bpd and the rate of scaling up is in the hands of the government, Mr Dudley said. “The key will be approval by the Iraqi government of drilling and equipment contracts and keeping the workflow going there. That will be the pace determiner and we recently had approval of a whole set of contracts.” But the company has solved some of the big engineering challenges, including securing water sources for injection into the field.
BP also has signed a deal with the government of Kuwait about enhancing recovery at its giant Burgan field. “If we can get the results we are looking for there there may be more work for us with the government of Kuwait,” he said.
The other key project for BP in the region is the $16bn Khazzan gas project in Oman, which involves drilling around 300 wells over 15 years with first gas targeted for late 2017. That is an unconventional gas project involving “fracking”, an area that the majors are increasingly moving into.
BP’s rate of investment will not be hit by the recent weakening in the oil price, Mr Dudley said. “We are not going to hit the brakes just because oil prices have dropped.” But capital expenditure this year is likely to be about $1bn below the original target of $24.5bn and remain at that rate next year.
Even before the oil price drop, companies were under pressure to control costs. “Capital discipline is what our shareholders want,” Mr Dudley said. “This has been an industry that has tended to overspend and be behind on schedule, so we’re going to work really hard to make sure we spend wisely.”
amcauley@thenational.ae
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