BP Places Bets on the Gulf of Mexico and India to Raise Output

September 7th, 2011 by Trefis Team
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BP (NYSE:BP) will look to new drilling projects in the Gulf of Mexico and increased output from the KG Basin deepwater wells in India to prop up its sagging output. [1] The company has been under pressure to revive its production levels that saw a 9% drop in the 2nd Quarter of 2011, largely due to a drop in production in the Gulf of Mexico from 400,000 bbls/day to 250,000 bbls/day following the 2010 spill. BP is the largest oil producer in the Gulf where other other oil majors such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS) as well as independent exploration companies such as Anadarko (NYSE:APC) also have drilling activities.

We have a $55 price estimate for BP which is a 45% premium over its current market price.

Production to Improve After Q3

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According to Reuters, Executive Vice President Steve Westwell has expressed hope that BP will reverse the drop in output by the end of 2011 after bottoming out in Q3. [1] The company is banking on the issuance of permits to drill new wells in the Gulf where it owns substantial acreage. 17 permits have been issued for new drilling in the Gulf of Mexico in 2011, 13 of them granted since June. [2]

However BP, which found itself in hot water for the Macondo blowout that spilled over 4 million barrels of oil into the ocean, has only been able to secure one permit this year and that just allowed the company to plug and abandon a well it dug earlier. [1] The company hopes it will have better luck with permits in the coming months and is looking to drill production wells in the Thunder Horse and Atlantis fields. The Thunder Horse is the world’s largest platform with a capacity of over 250,000 bbls/day. [3]

Recently Chevron announced a discovery in the Moccasin prospect in which BP holds a 43.5% stake. Moccasin was the first permit granted by the U.S. Government in the Gulf since the spill. [4] Exploration activity in the Gulf seems to be back on track with 20 floating rigs working in the region up 400% since last year.

Indian prospects

BP is also banking on the 21 oil and gas blocks in India in which it purchased a 30% stake from Reliance earlier this year for $7.2 billion. [4] BP is expected to use its expertise to boost production from the KG D6 deepwater block where output has fallen from 60 mscmd (million standard cubic metres per day of gas) a year ago to the present 48 mscmd. But the results of BPs involvement may not be immediate according to company officials who estimate that it could take around 2 years for the output from the fields to improve. BP is also scouting for more such deals in the country.

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Notes:
  1. UPDATE 2-BP looks to ramp up Gulf of Mexico activity India output, Reuters [↩] [↩] [↩]
  2. UPDATE 3-Chevron makes U.S. Gulf deepwater find at Moccasin, Reuters [↩]
  3. Thunder Horse Field Gulf of Mexico, USA, Offshore technology [↩]
  4. ref:1 [↩] [↩]