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Atlantis project hit with delay BP defers 150,000 barrels per day of U.S. Gulf production in 2007, 100,000 bpd in 2008 Ray Tyson For Petroleum News
BP continues to fall behind on major deepwater oil projects in the Gulf of Mexico, causing production delays of around 150,000 barrels a day in 2007 and roughly 100,000 barrels a day in 2008, with some additional deferrals that would have “little impact” on production rates by 2009, BP said.
For the second time, BP has delayed startup of its Atlantis field, from the first half of 2007 to late in the year, the company disclosed Feb. 5 in its 2006 fourth-quarter earnings conference call. Initially, Atlantis was to come on stream at year-end 2006.
Last year BP also delayed production startup for a second time at its huge Thunder Horse field, the largest discovery ever in the Gulf of Mexico, to mid-2008 from early 2007. First oil from Thunder Horse, located on multiple blocks in Mississippi Canyon, was initially expected in the second half of 2005, but was postponed because of hurricane damage.
Coupled with operational delays in Alaska and the North Sea, the exploration and production side of BP’s business was a “disappointment” in 2006, BP’s Tony Hayward confessed, indicating that market tightness in the oilfield services sector contributed to the second delay at Atlantis.
Hayward, BP’s former head of exploration and production, will replace John Browne, BP’s chief executive officer, when Browne retires this summer. Hayward’s current title is group chief executive designate.
Hayward: supply chain stretched “All of these occurred in an environment where the supply chain is stretched to the breaking point,” Hayward said of oilfield services, noting that continuing upward pressure on operating costs also is putting company earnings under pressure, “especially as oil and gas prices are no longer rising at the same pace seen over the past three years.”
BP faced a 14 percent increase in operating costs during 2006, a level the company expects in 2007. However, over the past three years, BP said it experienced more than a 35 percent increase in costs, some of which were offset by long-term rig and supplier contracts, technology and “demand management.”
“We continue to see very strong inflationary pressures in all parts of our supply chain,” Hayward said.
The Atlantis project, covering Green Canyon blocks 699, 700, 742 and 744, is expected to cost around $2 billion. Twenty wells are planned, including 16 producers and four water injection wells. BP operates Atlantis with a 56 percent interest. Australia’s BHP Billiton owns the remaining 44 percent.
BP, just a week prior to announcing the first Atlantis delay last year, postponed first oil from Thunder Horse, due to “metallurgical failure” in components of the field’s subsea system, in particular a leaky manifold evidently caused by a bad weld. BP decided to retrieve and rebuild all of Thunder Horse’s sea-bed production equipment.
A manifold is a massive subsea structure designed to send oil and gas from individual wells up toward the production platform.
Because of a similarity in manifold design, and the fact Atlantis was in an earlier stage of development than Thunder Horse, BP decided to also retrieve and make precautionary modifications to Atlantis’ manifolds, resulting in that project’s first delay, according to a BP spokesman.
However, another spokesman for the company said a need to further study ocean currents in the vicinity of the Atlantis development led to BP’s decision to postpone field startup the first time. These so-called “loop currents” are prevalent in many deepwater areas of the Gulf of Mexico and can cause serious damage to subsea equipment and installations.
The Atlantis production facility was designed to process 200,000 barrels of oil and 180 million cubic feet of gas per day, compared to Thunder Horse’s 250,000 barrels of oil and 200 million cubic feet of gas per day.
In 2002, Atlantis reserves were increased to 575 million barrels of oil equivalent from an initial estimate of around 300 million barrels. The Thunder Horse field holds recoverable reserves of around 1 billion barrels of oil equivalent.
Company’s current Gulf production more than 350,000 boe per day BP currently produces in excess of 350,000 barrels of oil equivalent per day from nearly two dozen fields in the Gulf of Mexico, including company-operated facilities at Na Kika, Pompano, Marlin, Horn Mountain, Mad Dog and Holstein. BP began deepwater Gulf of Mexico operations in the mid-1980s.
In addition to production deferrals at Atlantis and Thunder Horse, BP’s overall output in 2007 will be down an additional 130,000 bpd due to property divestitures made in 2006, the company added.
Moreover, because BP recently adopted a more conservative economic threshold for projects based on $60-per-barrel oil, up from a previous $40 per barrel, production will be down another 100,000 bpd in 2007 and an additional 300,000 bpd by 2009.
Worldwide, BP produced an average 3.926 million bpd of oil equivalent in 2006, down from 4.014 million bpd in 2005. Based on $60-a-barrel oil, the company anticipates producing more than 4 million bpd by 2009 and more than 4.3 million bpd by 2012.
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