What's on the mind of BP's top geologist, Richard Herbert, some 18 months after taking on the role of chief operating officer for Exploration? At a time when the oil price is at a low, he tells BP Magazine why a focus on maintaining long-term renewal is crucial
BP has rebuilt its exploration portfolio in the last few years with significant access to new opportunities around the globe. Is it too soon to see results?
Momentum has returned to exploration activity in BP; we’ve increased the quantity of acreage accessed since 2011 and we’ve been able to show good drilling results over two consecutive years. With 12 discoveries in 2013 and 2014, we’re finding new fields and many of those are located in our key operating areas. Last year saw exploration success in the Gulf of Mexico - where we announced the Guadalupe discovery, with our partners, in the same area as our Tiber and Gila fields; in Egypt; in the North Sea; and on each side of the South Atlantic – offshore Brazil and Angola where, interestingly, there is similar geology. This year, we have already had some exciting finds including another major gas discovery in Egypt at the Atoll-1 well. BP has well-established positions in a number of the world’s major hydrocarbon basins so our priority is to do a very efficient job exploring in those regions – for example in Angola, Azerbaijan, the US Gulf of Mexico and the North Sea. Our task is to support, sustain and, in some cases, grow those positions. Discoveries such as Vorlich in the Central North Sea show us there are still resources to find, even in mature provinces.
"Our Exploration portfolio grew by 40% between 2010 and 2014. Now we have slowed down that portfolio-building programme to test the opportunities we've accessed."
- Richard Herbert
BP has also gained access in new exploration geographies since 2007, such as Brazil and Canada. What about these potential new areas of growth for the business?
There are really exciting new opportunities in such areas. New basins are relatively more risky – commercially, geologically - so we’ve reduced some of our exposure, by partnering with other companies, or what we call ‘farming down’ in the industry. For example, in January we announced a new ownership and operating model with Chevron and ConocoPhillips to combine expertise and resources to unlock the Tiber and Gila discoveries in the deepwater Gulf of Mexico. Our Exploration portfolio grew by 40% between 2010 and 2014. Now we have slowed down that portfolio-building programme to test the opportunities we’ve accessed. And, of course, we must manage within our reduced capital budget, following the drop in oil prices. This means we will focus on the best opportunities in the portfolio and in some cases, seek to defer activity, with the expectation that the cost to test will come down as cost deflation starts to impact our industry. We’ve been very active with seismic acquisition, for example, completing surveys in Trinidad, offshore Canada and Brazil. This year, we’ll run one large programme over our deep water blocks in Egypt.
You mentioned there, the drop in oil prices. Can you elaborate further on how an oil price of between $50 and $60 impacts exploration activity?
Traditionally, exploration is one of the first parts of the business which is impacted during times of lower oil prices since we spend money but don’t generate any near term operating cash. One of the actions we are taking is to reduce our capital from 2014. This means we have to be very rigorous in how we spend our capital, and focus our drilling programme on the best options to add value to BP. We must also show discipline in our cash costs – this is what we spend on seismic, studies and people. As the costs in our sector deflate over the next one to two years during this lower oil price environment, we will be able to ramp up activity. It is important that we maintain exploration momentum during this time to ensure the renewal and future growth of the business.
BP's total resources at the end of 2013
The proportion of unconventional resources in the BP portfolio
The number of discoveries made in 2014
Unconventional resources represent a growing share of the Exploration portfolio. Why is this the right approach?
‘Unconventional’ is a very broad term, as it covers a whole range of opportunities – from oil sands to shale gas, tight oil to other heavy oil resources. So, it’s a nice umbrella term, but, in reality, it represents a wide spectrum of opportunities that are well-represented in today’s portfolio. We also recognize that unconventional resources will grow in importance in future and BP has long-term options in positions such as Canadian oil sands and tight gas in Oman’s Block 61.
What is BP’s position on exploring the Arctic?
When you look at the maturity of the world’s hydrocarbon basins, much of the undiscovered conventional resources lie in the Arctic – but there are evidently tremendous challenges to working there. It’s also difficult to paint the entire region with a single brush, because in reality it comprises a range of different environments where conditions vary vastly. BP has a small portfolio of interests in the region – such as in Canada's Beaufort Sea – ones that allow us to remain exposed to successes there but, at the same time, they do not require large investment in the near term. We continue to evaluate the geology of the Arctic together with our consortium of partners, but we have no drilling commitments in the near future.
You’re a geologist by background – why did you choose that career pathway?
I went to university to study geology without really understanding what I was getting into – that’s probably true of many 18-year-olds! But I was hooked from the very start and I’ve never considered another career. I think exploration is quite a creative process – what I mean by that is, we obtain a very small amount of data in comparison to the size of area we’re studying and we need to ‘fill in the gaps’ between those data points. We might be looking at an area of thousands of square kilometres but we need to visualize from the data we have, as well as our analogue models and experience, what might be happening to the geology in between. So, I always consider geologists to have creative minds that allow them to envisage what might be under the earth’s surface.
What makes BP a great place to work for explorers?
I recognise, of course, that there are many very good explorers in other companies, but BP offers a great environment for explorers to develop their skills and to work on diverse projects around the world. We’re able to attract very good young people and then provide excellent development opportunities. The business is committed – and able – to give people the right experience to make them world-class explorers. Thanks to BP’s long history, we also have an extraordinary amount of data. There’s a saying in geology that the best geologist is the one who has seen the most rocks – it’s not always true but there’s certainly something to be said for the opportunity to see many different geological basins around the globe.