BP plans to up its capital budget for Alaska in 2008, but said recent tax increases kept the budget lower than anticipated.
Doug Suttles, president of BP Exploration (Alaska), planned to announce an $800 million capital budget for the company during a speech to the Alaska Support Industry Alliance at its annual Meet Alaska conference on Jan. 25.
“That is higher than our capital budget for 2007,” BP spokesman Steve Rinehart told Petroleum News on Jan. 24.
At $800 million, BP would be increasing its capital budget by around 17 percent from the $685 million it budgeted for Alaska in 2007. Rinehart said the 2008 operating budget is also expected to grow slightly from the $1.2 billion allocated for 2007.
But even with the increase, $800 million is “not as much as we had hoped to do for this year,” Rinehart said.
Rinehart could not provide an exact dollar figure for the changes made to the budget following the special session.
“I’m not going to put a number on it specifically for what we might have hoped to spend,” Rinehart said.
Upkeep, improvement and infill account for most of budgetAround half of the $800 million capital budget for 2008 “can fall under the category of safety and reliability” on existing facilities, Rinehart said, including rebuilding and replacing equipment.
BP plans to spend around $200 million of its 2008 capital budget on infill drilling, including “hiring rigs and buying equipment,” but is not planning any significant increases or decreases in drilling activity, Rinehart said.
However, BP has agreements for two new drilling rigs and one workover rig scheduled for the end of 2009.
These purchases will “update the drilling fleet and improve performance,” but not expand the infill drilling program.
“We’re going to continue at about the same level on infill drilling,” Rinehart said.
BP credits 800 new infill wells drilled at Prudhoe in the last 10 years with producing 70,000 additional barrels of oil a day.
“We can’t stop that decline completely, but we can invest enough to hold it back,” Rinehart said.
Liberty moves forwardBP also plans to spend around $150 million of its 2008 capital budget on the Liberty project, the North Slope reservoir it plans to access with ultra-extended-reach drilling.
Liberty passed a milestone on Jan. 3, when the Minerals Management Service, a branch of the U.S. Interior Department responsible for offshore development, approved the development plan for the offshore project with a Finding of No Significant Impact. The FONSI was noticed in the Federal Register Dec. 3; it had a 30-day public comment period before the final determination (see story in Dec. 9 issue of Petroleum News).
BP still needs to get permits from the U.S. Army Corps of Engineers, the North Slope Borough and the state.
“This project has a lot of momentum and we feel pretty optimistic about it,” Rinehart said.
Tax changes will be felt most at WRDAlaska’s major oil companies are just starting to give details about the impact of the recent tax increase.
In fourth-quarter filings for 2007, released Jan. 23, ConocoPhillips reporting paying $234 million more under the revised tax structure. (See story in this week’s issue on ConocoPhillips.)
BP is scheduled to report its fourth-quarter financials on Feb. 5.
Just days before the Alaska Legislature passed higher oil taxes during a special session this past November, Suttles said BP put its investment plans on hold “until the dust settles,” telling Reuters, “Before the tax stuff came up, we had a plan to increase our capital spending fairly significantly.”
Rinehart said the impact of the tax changes would be felt most at the western region development, a group of heavier oil accumulations at Prudhoe Bay.
“The tax increase changed the economic landscape pretty significantly, and so we had to adjust our capital spending a little bit to take that into account,” Rinehart said.
In plans for western region development, BP hoped to expand Z pad and build I pad in the coming years, according to Frank Paskvan, Prudhoe Bay western regional subsurface development manager, who spoke to Petroleum News in November.
Paskvan said BP planned to install I pad in 2011, following appraisal wells drilled in the winter and spring of 2006, and expand Z pad in 2008, with startup planned for 2009.
BP deferred around $1 billion in planned investment on I pad and other parts of the western region development because of the tax increases.
“We’ve put a big piece of that project on hold,” Rinehart said.