The good and bad of BP’s big discovery

BP’s discovery of an additional 400 million barrels of oil—and its associated $1.3 billion expansion announcement in January—underscore the power of large “portfolio players” in the Gulf of Mexico, according to 10/12 Industry Report.

Unfortunately, most other players are excluded from the game.

“This is good news, and it exemplifies the long-term viability of the Gulf, but it doesn’t change the fact that this (offshore oil) is a high-stakes poker game,” says David Dismukes, executive director of LSU’s Center for Energy Studies. “And not a lot of people play at the high-stakes table.”

The BP expansion will require a subsea production system running from eight new wells to its current platform some 150 miles south of New Orleans. The platform should be operational by 2020 and is expected to add another 38,000 barrels to the company’s daily production capacity. “That technology isn’t widely available to a lot of players in that industry,” Dismukes says. “They can’t take advantage of it. They don’t have the balance sheets. It takes a BP or Shell or Chevron to do that.”

Offshore’s barrier to entry will likely remain high, as current market dynamics aren’t enticing enough to pull producers away from the shale plays. As such, the cards are stacked heavily in favor of the mega producers who can find innovative ways to get more out of their existing Gulf structures.B P uses its own proprietary algorithm that allows seismic imaging data to be processed in a matter of weeks instead of a year.

“Your average cost is the cost divided by output, and the more you can increase that denominator, the more you can drive down that number,” Dismukes says.

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