FLORENCE, ITALY—Listening to BP’s upstream chief executive Bernard Looney, it is clear that he considers today’s challenges different than those of the past and that they require different responses that must include new kinds of relationships.
So why are today’s challenges different? In the oil and gas business it is often explained that change is cyclical. What goes around comes around. To some extent this is true as oil prices are always affected by cyclical factors such as supply disruptions. But according to Looney, things are different today. The industry is being affected by some structural changes, too, such as the rise of shale, digitization and improved recovery.
Shale is not only cheap, but flexible, helping the market adjust quickly. And it is massive. It is estimated that China, Argentina and Algeria each hold more shale gas resources than in the U.S. Digital technology is helping the sector discover oil and gas that was hidden before. In 2017 BP found 200 million barrels of hydrocarbon resources at its Atlantis Field in the U.S. Gulf of Mexico by using a new algorithm to process seismic data.
Meanwhile, operators are also unlocking more reserves through EOR. The U.S. Department of Energy has estimated that next generation CO2 EOR alone could double economically recoverable U.S. oil reserves.
“We estimate that there are enough recoverable resources available today to meet the entire world’s oil and gas demand for the next 30 years—twice over,” Looney said during his keynote speech at the BHGE Annual Conference in Florence, Italy. “Abundance is here to stay and with it, downward pressure on prices, even if other factors hold them up in the short term.”
The net result of these structural changes has been to shine the light on more operational efficiency.
“Oil and gas have a future as part of a changing energy mix but it is a different future,” Looney said. “Demand for oil will continue to grow, but some discovered resources may never be developed. And only the most competitively produced resources will reach the market.”
Demand for gas will grow faster as it provides a lower-carbon alternative to coal for power generation and a major source of industrial and residential heating as well as fuel for ships and trucks.
According to Looney, given this environment strategically growing gas production now clearly makes sense along with continuing investments in highly competitive—what he calls advantaged—oil. Operationally, efficiency is critical, and at BP this is driven by three trends—greater agility, a mindset change and digital transformation. “Digital technology is a game changer that is coming of age at just the right time,” he said. “All of this is enhanced by and reflected in partnerships, which matter like never before. In a complex world, no one can do everything. We must trust our specialist partners. I call this collaborating for competitiveness.”
Hallmarks Of Collaboration
Despite all the talk about partnerships and collaboration it is important to remember that at the heart of reducing costs and increasing efficiency are the traditional levers of cost and rates.
“We all need to be as efficient as possible and I make no apologies for seeking the best deals with our partners,” Looney said. “However, we have learned that long-term competitiveness depends on deals that work well for all parties over many years.
“This is why BP has been moving from the traditional operator-supplier arrangement to more of a partnership model. These new relationships challenge us to behave differently," he added. “They are based more on trust and long-term benefits, and less on individual transactions. They are based on respect. Instead of presenting suppliers with our bespoke specifications, we are looking to them for their solutions.”
Looney highlighted several areas of this new-age collaboration that BP has enjoyed with the hosts in recent years. In Oman at the supergiant Khazzan gas field, which started production in late September 2017, BHGE helped BP launch a complex tight gas operation in a way that has also built the capabilities of the country’s workforce. The gas reserves lie at depths of up to 5 km in narrow bands of extremely hard, dense rock. These complex and challenging conditions require specialised drilling equipment, the precise drilling of vertical and horizontal wells, and well stimulation to free the gas.
Strong partnerships can also be the source of innovation. An example is the partnership on the Plant Operations Advisor (POA) monitoring system now being piloted at BP’s Atlantis facility in the Gulf of Mexico. BP has provided domain knowledge, analytics, data and requirements from its prototypes while GE has provided the software development, cloud hosting, and support.
“Every day, POA on Atlantis performs around 40 million calculations on 400 pieces of equipment,” Looney said. “It flags up all divergences or excursions from normal operating limits and frees up engineers to fix and analyse the issues. The next step will be to flag up anomalies before they lead to excursions, so problems can be fixed without resulting in a shutdown. That means greater safety, reduced downtime, enhanced reliability and higher productivity.”
BP is now planning to deploy the technology across its facilities globally over the next two years.
Pay As You Go
In a concept that is well established within the aerospace sector but unusual in oil and gas circles, BP is rethinking its contracts to reflect commercial common sense rather than convention and paying for deliverables from equipment.
BP aims to close a deal soon in which BHGE will supply a turbine for the Cassia gas-producing facility in Trinidad & Tobago, Looney said.
The agreement could be an industry first because “instead of buying the turbine, BP will receive it in a way that is similar to the power-by-the-hour agreements common in the airline industry.”
BHGE will maintain the equipment, incentivized by maximizing availability.
“This means BP can look forward to good reliability while BHGE can look forward to a predictable revenue stream and the opportunity to develop skills and improve the product," Looney said. "We share risk and reward. And we both have a deep interest in maximising efficiency. These examples show that partnership can demonstrate all three of the drivers of efficiency that I mentioned earlier—digital transformation, agility and a changed mindset.”