OTC: Higher productivity ‘best insurance’ for meeting future energy demand, BP executive says

BP PLC has had to make some “very tough choices” and let some “very good people” go in Houston and elsewhere amid an environment that has changed “quite dramatically for all of us” over the last few years, a company executive told attendees May 2 at an opening session of the Offshore Technology Conference in Houston.

Bernard Looney, BP chief executive, upstream, posed these questions to his audience: “Is this [oil] price shock different than the others? Is it lower for longer, or is it lower forever?” He answered, “Let me be clear. At BP, we don’t think that it is lower forever.” Especially with the long-term global energy demand picture looking so strong, he said. And even after the usual cuts that companies make during such tough economic times, they will have to continue to improve productivity to meet this growing energy demand. “Improving productivity is the best insurance we can have for whatever future you chose to believe in,” Looney said.

There are many moving parts in this evolving energy demand picture, from climate change, to the US shale revolution, to the real technological advances being made in alternative sources of energy, Looney said. “How will all this play out? That’s hard to tell,” he said.

BP’s own forecast shows global energy demand rising one-third higher by 2035 than it is today, which would be like adding the total combined energy demand of the US, the European Union, and Japan. And it’s BP’s expectation that more than half of this demand will be met by oil and gas by 2035.

There are three factors to meeting this demand, however. The first is the pace at which global policy is moving on climate change, an issue that feels different in different parts of the world. He said, however, that the 195-nation climate agreement reached in in Paris last December was a “welcomed” watershed moment for the company and the world. “The world does need action on climate change,” Looney said. There exists today a collective political will to move policies further and faster than before toward a lower-carbon future, he said.

The second factor to meeting demand is the increasing competitiveness of other sources of energy. “Hydrocarbons have really gone unchallenged on cost for a very long time,” he said, but even though alternative sources of energy only compose a small part of the world’s energy mix, “we cannot and should not afford to ignore them.”

The third factor is the competitiveness of oil and gas compared with other industries. When considering industries like manufacturing and aviation, “costs come down with time,” Looney said. In the oil and gas industry, and particularly in the upstream business, costs tend to follow the oil price. But costs have trended upwards over time, and not downwards, he said, adding, “We need to change this.”

The response of the onshore to lower prices, for example, has surprised everybody. In just a few years, BP’s own Lower 48 business has seen a 60% reduction in development costs of the wells it drills in the San Juan basin, he said. Despite the onshore rig count sustaining an 80% reduction—from more than 1,800 in November 2014 to just over 400 currently—production levels have remained the same.

“The extraordinary progress made with shale and tight rock has more than doubled the amount of oil and gas we think is recoverable from known reservoirs,” Looney said. “This is continuous improvement in action.”

We need to learn what we can from this phenomenon across the industry and continue to challenge what we are doing, and learn to adapt, he said.

This combination of innovation and continuous improvement is the driving force for the future. It’s how we will improve productivity and put costs on a downward curve, he said.

“The world needs this industry,” Looney said, especially with half the world living in poverty, “oil and gas will have a big part to play in changing lives.”

Contact Steven Poruban at stevenp@pennwell.com.

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