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Stuart Hampton

BP Agrees to Spend $9 Billion on Major Gulf of Mexico Project

by Stuart Hampton | Dun & Bradstreet Editor

December 1, 2016 | No Comments »

What a difference an OPEC meeting makes.

In late November 2016, after several months of on-and-off discussions, OPEC finally came to an agreement to set limits to and reduce future oil production by its member countries, in a bid to push global oil prices up to the $50-$60 barrel level after years of lower prices. This was the organization’s first agreement to cut oil production in eight years.

A few days later BP announced that it had approved plans to spend $9 billion on a new oil-production platform at Mad Dog, one of its largest deep-water fields in the Gulf of Mexico. Located in 4,500 feet of water, BP’s Mad Dog field holds an estimated 4 billion barrels of oil. The company believes that this project has the capacity to produce 280,000 barrels of oil a day and 60 million cu. ft. of natural gas per day. (BP’s partners in the Mad Dog project are Chevron and BHP Billiton, which together own about 40% of the project.)

Cause and effect? Probably not, and it is certainly not a case of “Mad Dogs and Englishmen” bravura. (BP’s chief executive is American Bob Dudley, by the way.) Indeed, BP (which is still feeling the chastening effects of the 2010 BP Deepwater Horizon disaster and the multiple billions it was forced to pay out in its wake) has been quite conservative in its approach to Gulf of Mexico investments in recent years.

In 2013 the company delayed plans to build a massive $20 billion Gulf of Mexico oil-production platform, as lower oil prices starved it, and other oil explorers, of the necessary capital assets and cash flow to expand aggressively in the region.

Faced with a two-to-three-year low oil-price regime, BP redesigned the project and slashed costs by more than half during this oil bust.

With the OPEC deal now signaling that the worst days of low oil prices in this recent cycle are over, the British company feels confident that it can make money from large deep-water Gulf of Mexico projects even in a less-than-robust oil-price environment, if projects are designed to be smart and cost-effective.

Beginning in 2021, BP expects to drill up to 14 wells and estimates that the Mad Dog deep-water platform would be able to then pump as much as 140,000 barrels of oil a day.

The OPEC deal did not determine BP’s decision to expand its infrastructure projects in the Gulf of Mexico, but its promise of stable and rising oil prices doubtless has BP executives breathing a little easier about this capital outlay.

British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Peter Doran’s “Breaking Rockefeller” and Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.

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Photo courtesy of BP.

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