How BP found shale profits with ‘crystal ball’ technology

Company’s $10 bln BHP buyout reflects confidence in sector

LUFKIN, Texas/LONDON, July 30, (RTRS): In the pine forests of eastern Texas, oilfield workers equipped with virtual-reality goggles are helping BP’s shale business turn a profit for the first time.

Thousands of automated wells feed data on their performance into the firm’s supercomputers each evening. If they show a need for maintenance, an Uber-style system summons a subcontracted repair firm to keep the shale wells flowing at optimal output and minimal cost.

Such ‘crystal ball’technology has helped slash BP’s shale oil and natural gas production costs by 34 percent over five years. The shale business turned a profit for the first time in 2017, BP said, although the company declined to disclose the figure.

BP’s progress in shale underpinned its $10.5 billion acquisition last week of BHP Billiton’s US shale operations. The deal highlighted BP’s newfound confidence in a sector that has challenged oil majors, which initially struggled to adjust to the quick pace and fast-evolving methods used to tap shale with horizontal drilling and hydraulic fracturing.

BP and other majors that had traditionally focused on large, multi-year conventional drilling projects — such as Royal Dutch Shell and Chevron — were left behind when the shale boom took off a decade ago.

The British energy giant is now catching up with smaller rivals, using technology and its institutional knowledge from global operations to push shale into a second phase that it hopes will reward its massive scale over the agility of smaller competitors.

“We spent the last four years retooling our business and getting ready for this opportunity,” David Lawler, who heads BP’s shale business, said in a call with analysts after the BHP deal announcement. “We’re at the lowest production costs we’ve seen in many years. We’ll take that model, put that to work on these (BHP) assets and dramatically improve production and performance.”

BP faces other large rivals in the race to grow US shale production and profits, including Exxon Mobil Corp, Chevron, Shell and Norway’s Equinor. All are expanding drilling and acquisitions, particularly in the Permian Basin of West Texas and New Mexico, the largest US oil field and the center of the shale revolution.

They aim to capitalize on the vast resources unearthed by new drilling technologies, which also allow companies to start and stop production quickly in response to market shifts. That’s a key advantage over the longterm commitments of billions of dollars required by offshore oil or liquefied natural gas (LNG) projects.

The BHP deal will transform BP into one of the world’s biggest shale oil and gas producers. BP’s total shale output will increase from 315,000 barrels of oil equivalent per day (boed) to more than 500,000 boed. Its reserves will jump 57 percent to 12.7 billion barrels of oil equivalent.

BP’s output of shale oil — which is worth more than natural gas — is poised to rise from about 10,000 barrels of oil per day (bpd) to about 200,000 bpd by the middle of the next decade.

The deal, BP’s first major acquisition in 20 years, also marked a watershed moment for the company in the United States as it looks to leave behind the $65 billion fallout from the deadly 2010 explosion of its Deepwater Horizon rig in the US Gulf of Mexico.

The BHP deal will also re-establish BP as a major player in the Permian Basin. BP had sold all of its assets there to Apache Corp in August 2010, right after the Gulf disaster.

Today, BP operates more than 1,000 shale wells that produce mostly natural gas in the Haynesville basin, which straddles eastern Texas, Arkansas and Louisiana.

It has used the data from its automated wells to create a streamlined system that farms out maintenance to a fleet of lower-cost contractors. The firm now orders up repairs much in the same way a homeowner uses a mobile app to hire a maintenance person or a passenger summons an Uber for a ride.