BP to begin drilling in Gulf of Mexico again

• Rising price of crude paves way for new platform after Deepwater Horizon oil spill

BP’s decision to move ahead with a $9bn project to drill in the Gulf of Mexico is the first step towards major oil companies moving forward with US offshore plans that were postponed during crude’s price rout.

Exploration and development of new wells in the gulf slowed as crude prices plunged in 2014 to a low of $26.05 early in 2016.

The project, known as Mad Dog Phase 2, is the first new gulf platform to be sanctioned in a year-and-a-half, since Royal Dutch Shell began development of its Appatomattox project in July 2015.

BP said its decision on the platform and infrastructure came after the oil major managed to cut projected costs for the project by more than 50%

Mad Dog, which will have the

$55bn BP has had to pay in claims and costs associated with the spill

capacity to pump up to 140,000 barrels per day (bpd), has access to a proven crude supply. The drilling will be completed in an area that requires less technical complexity than some of the deepwater fields, where competitors have proposed projects. It is scheduled to start producing oil in late 2021.

“They were able to reduce their capital expenditures; the fields that they pick happen to have the right DNA, and this is exceptional DNA,” said Nansen Saleri, CEO of Quantum Reservoir Impact and a former head of reservoir management for state oil company Saudi Aramco.

“When you’re talking about 10,000 bpd, that’s Middle East standards,” he said.

The return to US deepwater was likely to be slow, Saleri said, as oil prices were still not high enough for a rush back into the Gulf of Mexico. Full re-entry into the Gulf would require sus- tained benchmark oil prices above $60 a barrel, far above the level of $50 at which they were trading at present.

BP is returning to expansion in the gulf after a painful hiatus following the 2010 explosion at its Macondo well, which led to the worst offshore oil spill in US history. BP has had to pay more than $55bn in claims and costs associated with the spill.

The company maintained an active interest in the region in the meantime, bidding for rights to develop territory that came up for auction in the interim and working to drive down costs of projects kept on hold.

The US Gulf, once prized for its abundant resources and lower political risk than alternatives such as West Africa, fell out of favour as technology unlocked cheaper production from US shale fields onshore, creating a glut of production that could be more easily increased or throttled back in response to price fluctuations.

The gulf produced 1.5-million bpd of oil in September, the latest month for which data are available, compared with a high of 1.7-million bpd in 2009, before shale’s popularity grew.

“Some people say that deepwater is finished. Well, we have a very different view. Based on our current calculations, Mad Dog will break even around the $40 per barrel mark,” Bernard Looney, BP’s CE of upstream, told investors in June.

While producers have sanctioned relatively small projects of $300m-$400m, known as tie-backs, no stand-alone projects have been approved since Shell’s Appatomattox.

Other US drillers including Anadarko Petroleum and Cobalt International Energy, have platforms under review in the gulf, and Chevron’s Anchor project is also being appraised.