BHP’s head of global petroleum Tim Cutt has used the analogy of Daniel Ricciardo’s Formula One Red Bull pit crew as an example of how the oil and gas industry will adapt and survive to thrive in the current oil price downturn.

Speaking at APPEA in Melbourne, he said he was more bullish than many of his peers on oil prices recovering, having experienced two previously significant oil slumps on world markets.

‘Volatile oil prices are nothing new,’ he said, referring to accelerated production from non-OPEC members during the 1980s that plunged prices by almost half to under $20 a barrel and caused a steady decline between 1980 and 1985.

‘In 1986 OPEC changed its strategy. Rather than enduring production cuts, they maintained and later increased their output. This drove prices down and allowed OPEC to steadily regain market share. Following more than a decade of flat prices and significant industry consolidation, the supply overhang subsidised and prices did indeed recover. I expect to see a parallel outcome in today’s market, but with a much more rapid cycle time,’ he said.

Cutt added that supply conditions had been relatively tight over the past 10 years and the industry had responded by increasing investment and exploration.

‘This led to several sizeable discoveries in Brazil and the opening of the United States shale industry, which has grown by a staggering 3mb/d of crude and condensate over the past four years,’ he said.

With supply currently exceeding demand by 1-2mb/d of oil, Cutt said the world needed to work off the overhang before prices stabilised over the next year.

While significant reductions in U.S. shale activity had emerged as the biggest contributor to global production cuts as a consequence of oversupply, Cutt said average yearly demand for petroleum liquids was expected to grow by more than 1mb/d per year.

‘On top of this, the petroleum industry must offset an annual base decline of approximately 3-4mmb/d. This means there is a gap of approximately 4-5mb/d of effective demand that must be met with liquids production.’

He compared Ricciardo’s race car crew’s performances and advances in the oil and gas sector. ‘In the 1960s race car crews were able to have a pit stop completed in under a minute. Today Formula One teams achieve this in under three seconds.

‘We have been applying the same methodology in our shale operations and have some great examples of success: Taking rig moves from eight days to three days, reducing frack pump maintenance from eight hours to 15 minutes, and today we have lowered our drilling costs by 50%. In addition, exploration and conventional business over the past 12 months had reduced time to load and analyse seismic data by 80%.’