BP Drops Bight Drilling Plan

By Glenn Dyer | More Articles by Glenn Dyer

A story on the Financial Times website overnight gave an early tip about yesterday’s surprise decision by BP to dump its controversial two-well drilling campaign in the Great Australia Bight.

“Employees entering BP headquarters in St James’s Square, London, are given a daily reminder of the imprint left on their company by the Deepwater Horizon oil spill, the FT story started. "A sign in the entrance declares BP’s priorities to be: “No accidents; No harm to people; No damage to the environment.”

"Bob Dudley, chief executive, insists that, after a painful period of retrenchment, BP’s underlying business is at an inflection point. Several projects are due on stream next year, supporting a target for 800,000 barrels per day of new production by 2020. “The cavalry is coming over the hill,” he says.

"Mr Dudley says there will be no return to the swashbuckling growth through big acquisitions and ambitious exploration that saw BP overtake Royal Dutch Shell to become the world’s second-biggest oil major after ExxonMobil — until tragedy struck in 2010. The 61-year-old American is rebuilding a more restrained company, focused on improving efficiency and profit margins rather than chasing volume for volume’s sake. He denies the aim is to be boring — “I’ve never been more excited,” he says — but, after years of high drama, investors are not looking for more Hollywood plots.”

The bottom line is that BP wants a quiet life – no more drilling in sensitive areas for the time being (not with prices so low and costs still a concern, even after two years of cost cutting). Not too many unstarted projects can be justified at current prices – especially where any discovery would have to start two kilometres below the surface.

BP claimed in yesterday’s statement issued in Australia that it wasn’t environmental worries that killed the drilling campaign, but economic considerations.

"BP has taken the decision not to progress its exploration drilling programme in the Great Australian Bight (GAB), offshore South Australia.

"The decision follows the review and refresh of BP’s upstream strategy earlier this year, which included focusing exploration on opportunities likely to create value in the near to medium term, primarily building on BP’s significant existing upstream positions.

"BP has determined that the GAB project will not be able to compete for capital investment with other upstream opportunities in its global portfolio in the foreseeable future,” the statement said.

But those economic issues must have arisen very late in the piece because BP has been talking up the drilling campaign, and issuing announcements about the spending onshore on infrastructure to support the operation, which was to have been in tandem with Norwegian-state controlled oil group, Statoil.

Statoil’s involvement has been skated over by various media reports critical of BP’s plans – in fact these reports – such as on the ABC – have given the impression that BP is the only company involved.

And with Norway becoming more activist in regards to environment issues – especially oil and gas drilling, coal and pollution (and its huge state wealth fund taking an activist role in the companies operating in this area), you have to wonder if BP got a bit of an elbow from its partner and its masters.

The wells were planned for about 600 kilometres west of Port Lincoln and 350 kilometres south-west of Ceduna.It has been claimed the oil potential in the area could have rivalled oil and gas output from the Bass Strait, Victoria’s Gippsland and Western Australia’s North West Shelf.

One estimate said the potential scale of the project could have been more than 20 times the entire Australian oil production in 2014.

BP’s exploration chief, Carole Fitzpatrick said the move wasn’t a result of the approval processes by the federal government’s offshore oil and gas regulator NOPSEMA.

“This decision has been incredibly difficult and we acknowledge it will be felt across the South Australia region," she said yesterday.

"We have made significant progress with preparations for drilling in the Bight with the support of communities and federal, state and local governments. We acknowledge our commitments and obligations and our priority now is to work with government and community stakeholders to identify alternative ways of honouring these."

Environmental groups including Greenpeace had warned more than one month delay for the moving of well caping equipment to Australia to control any major oil spill,was a big problem with the potential threat to tourism and fisheries. Local government on Kangaroo Island was opposed to the campaign, but supportive in Ceduna, where millions of dollars have already been spent on facilities, now likely to be shut.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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