BP, BHP Billiton to proceed with Mad Dog Gulf of Mexico oil project

BP plans to expand a major Gulf of Mexico oil project with partners including BHP, amid signs crude’s slump is ending.

Gulf of Mexico oil rigs. Oil companies have been trying to make even historically expensive deep water projects work at lower oil prices.

BP plans to press ahead with a major deep water project in the Gulf of Mexico with partners including BHP Billiton — the latest evidence oil companies are tentatively wading back into big-ticket projects amid signs a two-year crude-market slump is ending.

The project to expand production from the Mad Dog oilfield off the coast of Louisiana has faced years of delays. BP and its partners struggled to bring down costs, contending first with high industry inflation in the boom years before 2014, and then with a catastrophic slump in oil prices.

The oil giant said it had reduced the cost of Mad Dog phase 2 — as the project is known — to $US9 billion, compared with $US20 billion in 2013.

The project is expected to begin production in late 2021, but it still needs approval from BP’s partners, BHP Billiton and Chevron unit Union Oil Company of California.

BHP Billiton declined to comment. The company has previously said it expects to make a final investment decision in the first quarter of 2017.

No comment — BHP’s Andrew McKenzie.

Chevron spokeswoman Brenda Cosola said the company is reviewing the plans for the project and will announce its decision “at an appropriate time.”

Oil companies such as Royal Dutch Shell PLC have said recently they have successfully cut back to make even historically expensive deep water projects work at lower oil prices.

“Some people say that deep water is finished,” BP’s head of exploration and production Bernard Looney said in a presentation this summer. “We have a very different view.”

The decision to move ahead with Mad Dog phase 2 came a day after the Organisation of the Petroleum Exporting Countries said its members would curb oil output. Crude prices have soared over 14 per cent since the deal, with Brent crude, the international benchmark, hitting $US54.50 in London afternoon trading.

The OPEC deal has added fresh confidence to an industry that has tentatively begun to invest again, signalling a gradual recovery after companies slashed their budgets in response to low oil prices.

Oil companies had cut $US1 trillion from their planned global spending on exploration and production for the period between 2015 and 2020 in response to the price slump, according to a June report by Edinburgh-based consultancy Wood Mackenzie.

The project also comes as BP embarks on a plan to raise its production of oil and gas by 800,000 barrels of oil equivalent a day over the next four years.

The second phase of Mad Dog would add the capacity to pump an extra 140,000 barrels a day to a project currently producing about 80,000 barrels a day of oil and about 60 million gross cubic feet of natural gas. The project involves installing a floating production facility about six miles from the existing platform.

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