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Vol. 15, No. 47 Week of November 21, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

BP spending ‘flat’

Minge cites $800M capital budget for Alaska, touts massive viscous oil

Wesley Loy

For Petroleum News

BP has been the subject of plenty of speculation lately about its future in Alaska. But its president, John Minge, sounded plenty committed to many more years of work on the North Slope during a Nov. 17 speech in Anchorage.

Talking on a topic of “progressing a sustainable oil and gas business in Alaska,” Minge laid out the company’s budgets for 2011 and talked in detail of such long-term projects as trying to unlock the Slope’s vast stores of viscous oil.

He left every impression that BP will remain in Alaska, working vigorously, despite the profound impact of the Deepwater Horizon disaster in the Gulf of Mexico, which has forced BP to pursue the sale of billions of dollars in global assets.

Plenty of talk has swirled around whether BP might sell some or all of its many properties in Alaska. Most significantly, BP operates the country’s largest oil field, Prudhoe Bay, and owns a 26.36 percent working interest in the Prudhoe Bay unit.

“Many of you will be listening to me today for clues on how the Horizon incident will change BP in Alaska,” Minge told hundreds of listeners at the Resource Development Council for Alaska’s annual conference at the downtown Dena’ina Civic and Convention Center.

“I don’t expect significant change in our activity set next year,” said Minge, who then detailed the company’s Alaska spending plans.

Capital and operating budgets “will be broadly flat in 2011 with what they’ve been this year,” he said.

The company aims to spend about $800 million net on capital projects in 2011, and has $1.3 billion in operating costs budgeted, Minge said.

A flat capital budget means it will remain at the 2010 level, which was down about 20 percent from 2009, he said.

“Our capital budget is roughly split in thirds, with a third going to safety and operations integrity, a third to sustain the base which offsets and mitigates decline, and a third for growth, which is primarily Liberty,” Minge said.

Liberty is a new field BP is working to develop offshore in the Beaufort Sea, not far from its Endicott field.

Viscous and heavy oil

With technology improvements, some excellent oil prospects remain available on the North Slope, Minge said.

“There are plenty of resources,” he said.

“Over the last year we’ve focused hard on how we could improve and grow our base business in Alaska,” Minge said. “We challenged ourselves and started to think about the resource base differently, especially in the area of viscous and heavy oil.”

The North Slope holds billions of barrels of these challenging resources, he said.

“You know, we’ve always looked at our resources as light, heavy and gas — and we looked at them within unit boundaries,” Minge said. “Between light and heavy oil is a continuum of viscous oil. Viscous oil is sort of like maple syrup, whereas the heavy oil is more like molasses.”

BP looked at its track record on viscous oil development so far — the successes and failures of previous investments, he said.

“And we looked at what would be possible if we could find a way to develop viscous oil at scale, and what technologies would be required,” he said.

He referred to the findings of “a fascinating study” within BP.

“The result of the scoping work is we believe it is possible to develop 2 billion barrels of gross viscous oil with technology advancements that we believe are achievable,” he said. “A project like this would require on the order of 2,000 more wells on 50 pads with a new gathering center and a hundred miles of new pipelines.”

Such a project using “economies of scale” has the potential to flatten the North Slope’s production decline, Minge said.

It’ll require surface facilities to handle lower-grade, solids-laden crudes, he said. And the cost of drilling and well completions will have to be lower.

“On the heavy oil, we’re further away,” Minge said.

Getting heavy oil out of the ground is expensive, and to do it competitively will require significant technology advances, he said.

To that end, BP has completed construction of a $100 million pilot project on the Milne Point S-Pad. In the first quarter of 2011, Minge said, “we’re finally going to be producing the first three wells of that pilot program.”

People and safety

Minge also spoke about BP’s evolving Alaska workforce, and its re-emphasis on safety. And he reiterated the industry’s familiar refrain that the state needs to dial down its tax take to encourage more oil and gas activity in the state.

Forty percent of the Slope workforce is now eligible to retire, so BP faces a tremendous challenge to groom a new generation, he said. In 2010, BP has hired 100 technicians and operators, many of them graduates of Alaska Process Industry Career Consortium programs.

In lieu of the Deepwater Horizon incident, BP is applying more intensity to understanding risks, particularly low-probability, high-consequence risks, Minge said.

“We will shut down activity if necessary, and we did this a few weeks ago,” he said, with a couple of rigs working for BP on the North Slope. It happened after “we determined that the pace was too slow to react to the internal audit action items and compliance requirements.”

Said Minge: “This sent a strong message across our operations on the Slope. There’s no one wants to get shut down. But it was absolutely the right thing to do.”

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