BHP chief Andrew Mackenzie puts his faith in oil discovery
As BHP Billiton boss Andrew Mackenzie cuts, one area of the business will see activity accelerate — oil exploration.
As BHP Billiton managing director Andrew Mackenzie slashes dividends, spending and jobs in response to the commodities rout, one area is not only avoiding the cuts but will see activity accelerate — offshore oil exploration.
Mr Mackenzie, one of the world’s foremost oil exploration academics before pursuing a corporate career, is holding conventional oil exploration spending steady at $US600 million ($800m) a year as the company embarks on its biggest push in more than a decade, targeting big finds in the Beagle sub-basin off Western Australia, the Gulf of Mexico and in Trinidad and Tobago.
The Weekend Australian understands that rather than responding to falling drill rig-hire rates and lower oil prices by cutting back spending, BHP is instead taking advantage of the lower rates by trying to secure an extra offshore drill rig.
This means it would have more exploration rigs operating in the Americas and be able to pursue concurrent testing of big targets on exploration ground recently acquired in the Gulf of Mexico and Trinidad and Tobago.
Success would remove or reduce the need to make a big oil acquisition to balance the company’s overexposure to US shale oil and gas through its $US37 billion ill-fated acquisition and capital spending since 2011.
But success in frontier offshore oil provinces is nothing if not high-risk, with wells having a one-in-10 chance of success.
The oil exploration push has taken shape after former petroleum boss Tim Cutt narrowed what was a scattered BHP global exploration approach for more than a decade to one focused on three big untested provinces with potential world-class oil finds — or “elephants”, as they are known in the resources industry.
Mr Cutt left BHP at the start of the month but the plans are being followed up by his successor, Steve Pastor.
They are also supported by Mr Mackenzie, whose 1980s studies on how oil and gas was generated, travelled and became trapped underground earned him the 2002 Aberconway Medal from London’s Geological Society, which said the work had influenced exploration around the world.
If BHP’s program comes off, the discoveries could substantially change the nature of BHP’s petroleum unit and tilt it back to the conventional business it has been since the 1960s, when its push into the then frontier Bass Strait with Exxon gave the pair almost total control over one of the world’s best oil and gas provinces.
In a call with analysts last month, Mr Mackenzie alluded to the push to secure another drill rig and that he was hoping for a find the size of which could avoid the need for an acquisition.
“We probably will take the opportunity of lower rig rates to up our pace of oil exploration,” the BHP chief said.
“We have a lot of opportunities we’d like to understand before we perhaps consider inorganic opportunities in oil.”
The latest addition to the exploration portfolio is 50 blocks BHP acquired in the past 18 months, largely in the western Gulf of Mexico, where the company is targeting finds of more than 300 million barrels.
In Trinidad and Tobago and Barbados, where the company has finished the biggest non-government seismic survey in history, a portfolio four times the size of that in the Gulf of Mexico has been compiled and an eight-well program is about to start.
The major target in the Caribbean is the “Pegleg” prospect, whose footprint is up to three times the size of BHP’s major producing Gulf of Mexico finds.
Before formulating plans to access an extra rig, BHP had planned to drill this year in Trinidad and Tobago and in 2016-17 in the Gulf of Mexico.
The local target is the Beagle sub-basin off the coast of northern Western Australia.
The Beagle is a largely unexplored section in the northern reaches of the Carnarvon Basin, one of the nation’s most prolific oil and gas regions that provides gas for the North West Shelf, Pluto and Gorgon LNG plants.
Like in the Americas, BHP is looking for oil, not gas, and has previously flagged first drilling in 2017-18.
The accelerated exploration push comes after plunging oil prices have led many companies to cut back on exploration spending to conserve cash, cancelling existing contracts to hire drill rigs and not signing new ones.
As a result, trade magazine Rigzone estimates the cost of hiring a floating rig fell by nearly a third last year, from $US390,000 a day to about $US260,000.
More information on the exploration program will be delivered in coming weeks when BHP’s exploration chief, David Rainey, provides an update on its conventional business from Houston.
The push to boost BHP’s conventional exposure has become more urgent as the sliding oil price crunches the performance of the US onshore shale unit that BHP spent $US20bn buying and has since spent $US17bn developing.
The acquisitions, made under former chief Marius Kloppers and Mr Cutt’s predecessor, Mike Yeager, are yet to yield free cashflow and have underperformed because of US gas prices that never rose to where BHP had forecast they would.
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