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The yellow brick road is out there Dorothy, but it is paved with change
Kristen Nelson
Steve Marshall, named to head BP Exploration (Alaska) Inc. this past September, asked Meet Alaska attendees Jan. 25 what they would say if he were to announce a 7 billion barrel discovery on the North Slope.
He got cheers and applause.
That 7 billion barrels not only exists, Marshall said, but it is already in BP’s portfolio — at Prudhoe Bay and Kuparuk, close to infrastructure.
“It is the 7 billion barrels of the known and already discovered oil and gas resources in our current North Slope oil portfolio. About a third of it’s already booked. And the other two-thirds — more than four and a half billion barrels — is unproven but prospective,” he said, about 30 percent proven reserves of light oil, 20 percent unproven light oil, 30 percent viscous oil and the remainder natural gas.
Those barrels, Marshall said, “represent potential jobs, potential business opportunities and potential new revenues” just as surely as any new discovery.
But to get there, he said, there have to be changes, sustainable changes, cutting out bad costs and keeping good costs — and this has to be done in such a way that people make a profit or it won’t be sustainable. Technology challenges BP doesn’t yet know how to make all of those 7 billion barrels commercial, and believes fundamental changes will be required in how it does business.
Technology is part of the answer, Marshall said: North Slope development began with conventional drilling and recovery technology; “coiled tubing and multi-lateral drilling have driven down costs and boosted recovery.”
New technologies are needed to bring all of those 7 billion barrels to market.
“Light automated drilling, which BP is pioneering, has the potential to take another 20, perhaps even 30 percent out of the drilling costs of our business,” Marshall said. With 50 percent of development costs associated with drilling, light automated drilling would change the economics of some reserves and well workovers, he said. Sustainable changes BP believes that more than technology is required to produce those 7 billion barrels, he said: “we believe it’s imperative that we make changes now and refocus the way we do business for the long term in order to realize that potential.”
Marshall was here for the first Sohio restructuring in 1984 and said he knows people have seen a lot of periodic expansions and contractions over the years.
“And this may seen like another one of those cycles. But it’s not,” he said.
Why not?
Because the competition for needed investment capital “is more fierce than ever due to consolidations over the past few years.”
And if the reason for change is permanent, the changes that are made must be sustainable:
“We’ll measure our success in Alaska not only by what we accomplish over the next few months and years, but also by whether we maintain that same focus and discipline for the longer term over the next few decades.
“That’s what it will take to build a true, sustainable business in Alaska,” he said. Cost is the barrier “The only barrier between that 7 billion barrels and the market is costs,” Marshall said. And cost will be the focus — not just in 2002 — but for the future, he said.
But that cutting costs must be done, he said, “without compromising” and indeed while enhancing, “safety, environmental and integrity performance.”
But reducing costs, Marshall said, gives BP opportunity.
How much opportunity?
“There’s as much opportunity as we want to go after,” he said.
But the focus will be on fundamentals: “We’re going to continue with in-fill drilling and enhanced oil recovery. We have viscous opportunities, satellites and extensions.
“Less glamorous than big project perhaps, but real jobs, real business, real revenues and real barrels.” Competition within BP But Alaska isn’t as competitive as it needs to be on a global scale: operating costs are higher; midstream and transportation costs are higher; return on capital is lower.
“And you might say that’s not a recipe for sustained success. But that’s the reality of our business,” Marshall said.
BP has also, he said, had some disappointments in Alaska: disappointments at Northstar and disappointments at Badami. And plenty of exploration disappointments.
Over 10 years, Marshall said, BP found and commercialized 160 million barrels from frontier exploration: 16 million barrels a year at a cost of $40 million a year.
“In the same period, we’ve added almost 900 million barrels of extensions in our existing fields — five times that reserve. That’s where we’ve had the greatest success. And the exploration success we have had are from satellites — in and around Prudhoe, Milne, Kuparuk. That’s what we’re going to continue doing.” Investment continues Marshall said he’s been asked, in the four months he’s been here, if BP is harvesting? If the company is committed?
There are “7 billion barrels of already discovered reserves waiting to be commercialized,” he said. “I don’t think that is harvesting.” And BP is investing $700 million in capital projects in 2002, he said, 20 percent more than in the 1990s.
BP expects to keep its production, some 120 million barrels a year, flat for the next several years. And the 20 plus years of remaining production can be tripled with reserves BP knows it has, he said.
But BP will not just chase production, Marshall said: “We want to chase production but only that which improves financial performance. Only by improving our financial performance can we keep our business competitive to continue to attract the capital that we desperately need.” Production competitive Marshall said BP is also taking steps to make its producing properties in Alaska competitive, “…getting our cost base in line with our activity set for the next few years. It’s why we’ve taken a difficult step of releasing 20 percent of our Anchorage work force. And 75 percent of our contractor work force.”
At the same time, he said, the number of technicians on the North Slope is being increased “to meet the demands there of aging infrastructure” and BP is looking at moving less essential support activities off the slope.
The company is also adjusting compensation, drastically reducing travel and looking at sharing training costs.
“We’re even subletting our office space. So if any of you are looking for some decent accommodations in Midtown, see me afterwards,” Marshall said. Sustainabl BP is also looking for ideas on how to save on the company’s third-party spend, capital and operating, of some $1.1 billion.
“And some of you are probably thinking,” Marshall said, “… there was the setup, here comes the squeeze.”
But we’ve done that, he said: We’ve tried squeezing. It doesn’t work.
Between the North Sea and Alaska, BP has tried a lot of things, and “whatever it is we do this time, it’s got to be different. It’s got to stick. And it’s got to be sustainable.”
Good costs have to be preserved, inefficiencies and unwanted costs removed, he said.
“I don’t want any company that does business with BP not to earn a good profit. To not do so, not only is it poor for you, it’s poor for us — it’s not sustainable.”
BP doesn’t have the answer, Marshall said: “But what we are prepared to do is change. Change when necessary. Share our thoughts and ideas about where we need to go.”
BP has already invited many of its contractors in talk about this.
“I’m pleased to see that many are coming back with ideas,” he said.
The challenges of the future may not be the same as the challenges of the past:
“Are we doing everything we can to make sure everyone understands what those risks, what those issues are?” Marshall asked.
We need to get into a real dialogue with all the stakeholders in Alaska, Marshall said, because “if we don’t take that opportunity, we do stand a change of failing.
“But I think if we can create the right dialogue, a very successful future for the next 30, 40, 50 years is staring us in the face.
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