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BP's Bernard Looney at Offshore Europe - "hope is not a strategy"

Friday, November 27, 2015

BP's Bernard Looney, COO of production, explained in his talk at Offshore Europe in Aberdeen what the company is doing to make sure it survives the current low oil price environment, with the conclusion "hope is not a strategy"

Bernard Looney, chief operating officer for production with BP, explained how BP is making sure it survives the current low oil price environment, grouping his thoughts around learning, investing and innovation.

He was speaking at a lunch meeting at Offshore Europe in Aberdeen, on Tuesday September 8, with the theme 'New Times, New Challenges.'

Mr Looney is responsible for production operations, well operations, supply-chain management and engineering in the upstream.

Mr Looney began by citing the Oil and Gas Authority numbers that over 5,000 jobs have been lost in the UK oil and gas industry since late last year. 'There's no doubt these are very tough times,' he said. 'Many more are worried about their future.'
However, while some people might argue that talking about it would be therapeutic, 'we'd all agree that [talking about it] is unlikely to move the ball,' he said.
'There are many reasons to be optimistic.'

'We're in a growth industry - that isn't going to change any time soon. Demand for energy will continue to rise. Demand will be 1/3rd higher in 2035 than today. An additional 1.6bn people will need energy.

'Despite the environment the industry continues to invest $bns to bring new barrels to the marketplace.'

'Many people say, is the North Sea worth fighting for. For us, absolutely it is.'

'We've come through periods of low oil price before. Each low came with a unique set of circumstances. Our industry has always found a way.'

'It is a particularly tough assignment, [but] I believe we can do it and it is anything but mission impossible.'

Learning

'We talk a lot about learning,' he said. 'We all do things in our companies we are proud of and we can share.'

'We're engaging the front line - they know where we can improve.'

For example, in Egypt, BP staff calculated that if supply vessels travel at 90 per cent of their usual speed, they only need 70 per cent as much fuel.

'If we want to learn it has to start with the admission that others do things better,' he said. 'We have to be open to learning from competition and the service sector.'

'We recently sold a set of assets to a small independent. [We found that] one operation that cost us $1m would cost them $0.5m. We said, 'why can't we do that?''

'We're learning a huge amount from that organisation and they are learning from us.'

Looking at the independent oil and gas companies who revolutionised US onshore production, 'One company estimated that for every $1 they spent in 2015, they got 80% more from their reserves than in 2014,' he said.

'Previously when times were tough it was normal to turn on our contractors,' he said.

'We can learn a huge amount from our suppliers about how we run our business.'

'We sat down with our key contractors like Wood Group. They provided us with lists of how we can save money. For example, scaffolding arrangements. These will generate millions of dollars in saving.'

Companies can also work together to figure out better ways that work can be done, examples being the Step Change in Safety project and the Helicopter Issues Task Group.

'The work [Wood Group chief executive] Bob Keiller did [leading the Helicopter Issues Task Group] was exemplary and without equal.'

'I believe it should be a source of strength and confidence.'

Investing in the future

When it comes to investing in the future, 'In BP we've been focussing our asset portfolio and being clear in where we prioritise. Green vs brown, deepwater vs shallow, new basins vs strong incumbent position in mature regions,' he said.

'It is about playing to strengths.'

'In BP we've divested less strategic assets.'

One example of production improvement is with the Mungo Field in the Eastern Trough Area Project (ETAP), a network of nine smaller fields in the Central North Sea.

On the Mungo Field, BP managed to improve production five fold, with an 'innovative horizontal completion of a section of reservoir which had been overlooked,' he said.

Innovation

On the topic of innovation, 'we're in a new age of big data,' he said

'Big data hit pharma [industry] 20 years ago, aviation 30 years ago, it is time for oil and gas to catch up.'

'We have a tool 'Well Advisor', a remote digital monitoring system.'

Part of Well Advisor is the use of sensors which detect friction (between the casing and well wall), which could be an early indication of the casing about to get stuck.

These sensors and the analysis of their data has been used for 400 runs of casing, without any casing getting stuck, he said.

The increased use of sensors has led to exponential growth in the amount of data BP has to manage, he said.

One example is a sand management system in Azerbaijan, which generates 'gigabytes' of data every day, he said.

'It used to take several weeks to bring to shore, now we can process and analyse the data in real time. We can see sanding events as they are about to happen, and make decisions with the latest data.'

'I took my leadership team to Silicon Valley,' he said. 'I think we need to think differently. According to the CEO of a company in Palo Alto, these guys don't just think differently, they smell differently,' he joked.

Analytics 'can revolutionise how we drill wells and improve operational integrity of assets, improve the efficiency of our people,' he said.

Consider that 'a hydrocarbon processing facility can have 50,000 routes for oil molecules to get to market. If you map all of these routes you can optimise production.'

'It could add 4 per cent to production throughput. [the costs are] low capex, hundreds of thousands of dollars, or millions, but not billions.'

BP ran a trial using big data analytics to screen large geoscience data sets, looking at data for 5,000 wells, covering 250,000km2 of 3D seismic.

In particular, BP wanted to see if it could find any analogies (rock with similar reservoir properties) to the 'Vorlich' discovery in the central North Sea, a thin hydrocarbon bearing sand.

Normally, 'a 100 well data set would take 1 geologist 1 month [to analyse]', he said. 'With this, 5,000 wells were analysed in minutes.'

In conclusion, 'this is not a sunset industry, far from it. Oil is used in vehicles which are getting lighter and faster,' he said.

'We need to tell our stories. I continue to be amazed about the life and career this industry has offered me.'

'Investments we are making today will last until today's students are older. By learning from each other and investing in innovation we can compete on a global scale.'

Questions

In the question and answer session, Mr Looney was asked by a representative of Capstone Turbine Corporation what is the best way a small supplier can engage with BP. The company makes micro turbines which can reduce the cost of offshore power generation.

'One way you can do that is asking a question at an Offshore Europe lunch,' Mr Looney joked.

'There's a lot of people out there with a lot of ideas struggling to get access to the company,' he said.

Together with Trevor Garlick, regional president of BP North Sea, 'We've committed to open ourselves up more,' he said. 'We'll learn some things.'

Another example of this is the annual Share Fair in Aberdeen, where companies discuss their oil and gas projects.

'We used to present all our projects already sanctioned,' he said. 'There's talk now that instead of sharing problems we'll share some of the challenges we have,' he said.

Mr Looney was asked by Patrick O'Brien, chief executive of the ITF (Industry Technology Facilitator) what BP was doing about enhanced oil recovery.

'Trevor Garlick [regional president of BP North Sea] has been leading a piece of work on EOR,' Mr Looney replied.

'People always want the new shiny thing, the new project, big exploration wells. Of course the North Sea needs that. [But] If we could get a bit more oil out of these fields (we have) that would have a big impact.'

'We're trying to get some EOR schemes written down - see what this would look like, see what's technically possible [before we try to work out what's commercially possible].

'It deserves as much attention or more attention in a period of low oil prices.'

Mr Looney was asked what is the biggest thing the company has learned from collaborating with suppliers.

'There are so many things,' he replied. 'We've all learned when things go wrong it's easy to blame someone or something. We have to hold ourselves responsible.'

'I like to think we're doing that, holding up a mirror to ourselves'

'Suppliers are incredibly frustrated with how we deal with them. [for example] the number of people we have overseeing engineers in Wood Group.'

'Our 'man marking' is not where it needs to be.'

One supplier managed to help BP realise that it could save a quarter to half a million pounds a year in Angola, by not renting so much scaffolding, he said.

'We're learned an awful lot. The challenge is then to change.'

'We're fully up for it, we want to get competitive, we want the basin to be competitive. It starts with the admission you may not be the best in everything you do.'

'Yesterday we hosted a seismic sharing exercise, when companies shared how they process seismic, talking to people who in theory are competitors.'

'It is about opening ourselves up a bit.'

Mr Looney was asked how the industry can do more to develop known UK Continental Shelf discoveries now, rather than 'wait for the infrastructure to disappear'.

'I think fundamentally we have to get development costs of these projects in a more competitive space,' he said.

'We take a project like Mad Dog 2 [in the Gulf of Mexico] which cost $20bn. We got it down to $14bn. The question today is, could you do it for $10bn. [we need] that degree of progress.'

'Standardisation is really being picked up now,' he said.

'The project has got to compete. Some projects do. I'm optimistic that we'll do that. There's no reason why these projects should not go ahead.'

Finally Mr Looney was asked about his oil price prediction.

'BP CEO Bob Dudley said last year we're in 'lower for longer',' he said.

'That seems to be the way it's playing out for now.'

'It's a supply driven issue - predominantly driven by the lower 48.'

'The interesting thing is the market works. We expect demand [growth rate] for oil to be about double what the average has been for the last 10 years,' he said.'

'Production in the lower 48 has started to decrease. It will show an annual increase this year, and could show an annual decrease next year, the first decline since 2008.'

'In many ways the market is beginning to work. But we're in the 'lower for longer' camp.'

'I believe hope is not a strategy.'



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