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BP: Deep water can compete with shale 'any day'

Company's cost-cutting, 'new mindset' on US Gulf tiebacks has led to higher margins than before downturn

BP's efforts to cut costs in the deep-water Gulf of Mexico have led to higher operating margins than before the downturn making the prolific producing region now far more competitive with shale, a company official said.

"Today our cash margins in the Gulf of Mexico are better than they were when the price of oil was $80 a barrel," said Richard Morrison, BP's regional president of the Gulf of Mexico, speaking at the Offshore Technology Conference in Houston on Monday.

The UK supermajor is one of the biggest oil producers in the US Gulf and operates four major production hubs as well as multiple deep-water drilling units.

Since 2014, however, BP has paused its exploration programme in the region and "refocused" its portfolio. It has "halved" its fleet of vessels and helicopters in the region and nearly halved its onshore Gulf of Mexico workforce, Morrison said.

Meanwhile, some of BP's top competitors in the deep-water US Gulf like ConocoPhillips and Marathon Oil have directed more and more spending on US shale and tight oil, where economics are said to be better.

With the changes BP has made to its deep-water business, Morrison said the US Gulf now "can compete with tight onshore oil any day - any day."

Optimising the portfolio, spreading out risk through operated and non-operated stakes and improving overhead and lifting costs were all vital to improving the economics, he said.

These days deep-water breakeven costs for BP are below $40 a barrel compared to $80 in 2014.

"The economics for deep-water investments make as much sense today as they did back in 2001. Back then, the oil price was hovering around $20 a barrel and material discoveries were being made,” Morrison said.

That was the same year BP’s giant Thunder Horse development project was sanctioned, tapping one of the biggest discoveries to date in the Gulf of Mexico.

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Subsea tiebacks to existing infrastructure have also made investment decisions easier thanks to reduced cycle times and more reliance on industry standards.

Morrison described a “new mindset” at BP regarding tiebacks.

"Tiebacks are no longer an interesting side business. They are integral to both the midterm and longer term plans in deep-water,” he said.

BP's approach to development is becoming “more standardised and supplier-led", he said.

"We were getting into a place where perfection and design-tweaking had gotten in the way of good business," he said.

BP is now using its engineering expertise is to minimise risk "rather than designing the pristine solution".

This has led to shorter development cycle times. For subsea tiebacks, BP expects between 10 and 20 months from sanction to first oil, versus a typical 36 to 48 months previously.

"We have modified our approach by looking to industry to supply us their standard products and solutions rather than imposing BP standard on the supply chain," Morrison said.