|
Minge argues for taking strategic view Stresses importance of steering steady course amid oil price turmoil, with improved operational efficiency, LNG project progress By ALAN BAILEY Petroleum News
Likening the challenges in Alaska over oil price volatility to the challenges of driving a snow machine across rough terrain, John Minge, president of BP America, told the Alaska Support Industry Alliance’s Meet Alaska conference Jan. 9 that it is important to stay the course.
“Sure, there are going to be impacts and that’s the reality of a significant price drop, but we need to keep our nerve and stay strategic,” Minge said
There have been ups and downs before in Alaska and there is an “absolute pressing need and reality to get this right, going forward,” he said.
“Industry veterans know that … (oil) prices are inherently volatile and unpredictable for the simple reason that supply and demand are volatile and unpredictable,” Minge said.
And, although some are predicting an extended period of low prices, the most recent BP Energy Outlook report projected a 41 percent rise in global energy consumption over the next two decades, he said.
Alaska more competitive Set against that background, the recent changes in tax policy in Alaska have made the state much more competitive for industry investment, Minge said. And the passage of Senate Bill 138, the bill authorizing state involvement in the Alaska LNG project, established a clear roadmap for that project, he said.
Minge also denied accusations that under the new Alaska oil production tax BP is receiving more in tax credits than it is paying in tax fees.
“I want to be clear. BP Alaska pays more in production tax than we receive in credits, regardless of what you see in the paper,” Minge said.
The current fiscal problem in Alaska is a problem of low oil prices, not a problem of an inappropriate tax regime, he said. High tax revenues in Alaska in recent years, resulting from high oil prices, camouflaged the production decline in the state, as investment dollars flowed to other parts of the world during the 2010 to 2013 boom. And, in the couple of years since Alaska tax reform was enacted, BP has made significant progress in the state, Minge said.
Innovation and efficiency At current oil prices the oil companies, as well as the state, are hurting - any industry must respond to a 50 percent fall in the price of the product that it sells. And, for BP in Alaska, that is driving a need for innovation and improved efficiency, ensuring the effective use of capital as capital budgets shrink, Minge said.
“The challenge for producers is to respond in a way that improves efficiency and accelerates innovation, to make sure that every single dollar goes further and that every Alaska project is as capital efficient as possible,” Minge said.
During 2014 BP reduced the time taken to drill wells by 30 percent, despite the increasing complexity of the wells, while over the past three years the company increased the number of well-work jobs by 50 percent, Minge said. An innovation involving the repair of well casings without the use of a drilling rig is reducing repair costs by 50 percent, enabling cost-effective increases in well production. And the company’s drilling team continues to seek further efficiency improvements, he said.
The LNG project Minge also commented that significant progress has been made on the Alaska LNG project.
“Rest assured that the LNG project is much more than a dream,” Minge said. “And at the same time there’s work to do in order to make it a reality.”
At this stage there is strategic alignment between the appropriate parties: the Alaska Gasline Development Corp., Alaska, BP, ConocoPhillips, ExxonMobil and TransCanada. Worldwide LNG demand is growing; SB 138 has provided a roadmap for progress; and BP believes that the project can compete on a cost-of-supply basis, Minge said. With project sanction scheduled for late 2019 and growing supplies of natural gas from other parts of the world, Alaska has less than five years to convince the LNG market that the project will happen and is supported by the state, he said.
Actions for 2015 During 2015, the Alaska Department of Natural Resources must make a best-interest finding for the state receiving its gas royalties “in kind,” rather than as cash payments; and all parties in the project must agree on project-enabling terms for legislative approval, Minge said. The LNG project would support more than 15,000 jobs during construction and about 1,000 jobs once in operation - the project would create new opportunities for innovation in the oil and gas sector while making Alaska more prosperous for years to come, he said. The project would also result in a dependable and competitive supply of natural gas for the Alaska Interior, he said.
“All Alaskans have an interest in seeing this project move forward,” Minge said.
Minge sought to re-assure people that BP remains committed to its operations in Alaska, despite the recent sale of some North Slope oilfield assets to Hilcorp Alaska. That transaction will enable BP to maintain its focus on giant fields and large gas value chains by progressing oil and gas development in the Prudhoe Bay field, he said.
“Í can tell you and assure you that our commitment to Alaska remains as strong as ever,” Minge said. A rough ride Minge also commented on BP’s rough ride that started with the Deepwater Horizon disaster in the Gulf of Mexico in 2010. He said that, with knowing some of the people on the fateful rig at the time of the accident, the disaster had been devastating to him.
“But in the aftermath of the accident, I’m really proud that my company … did the right thing,” Minge said. “We said we would stop the spill; we said we would clean it up; we said we would pay people back who were injured. And that’s what we did.”
But, following $38 billion in asset sales to raise funds to pay for the spill, BP has become smaller, more focused and stronger, with less risk in its portfolio and with changes made to its organization, strategy and work processes - the company now has a high-graded portfolio focused on value rather than volume, Minge said. Commitment to U.S. BP invests more in the United States then in any other country and is the largest energy investor in the country, re-investing all of its U.S. profits in the U.S., Minge said. And the company employs more Americans than people of any other nationality, he said.
“What BP does here in the U.S., including Alaska, underpins every single piece of our broader strategy,” Minge said.
And, in Alaska, BP and the state have in the past overcome some major challenges.
“We just have to work together, focus on the essentials … hold our nerve and stay strategic - or as the younger generation tells me, KCCO, keep calm and carry on,” Minge said.
|
