06-03-2014, 11:34 PM
BP assessing its exposure to US shale
THE TIMES MARCH 07, 2014 12:00AM
BP is putting its US shale gas assets into a separate stand-alone business to improve its profitability after the fracking boom triggered a glut of cheap gas and squeezed industry margins.
All the British oil company's onshore oil and gas fields in the US, excluding those in Alaska, will go into the business. Among these are shale oil and gas fields holding 7.6 billion untapped barrels and 21,000 producing wells, which have been hit by a collapse in prices.
Based in Houston, away from the headquarters of BP's upstream division, the business will operate separately from the rest of the group. This would allow it to cut costs and make speedy decisions to compete with more nimble independent producers, which have pioneered the shale boom.
Lamar McKay, the head of BP's US upstream division, emphasised that there were no plans to sell the new business. "The intention is to build a successful business, not a less successful one and sell it off," adding the move would "would increase transparency of what it's worth within the company".
Analysts said the traditional business model of oil majors was not well suited to being a producer of shale oil and gas. Once a conventional discovery is made, it typically takes more than five years and billions of dollars of investment to bring it to production.
In contrast, shale gas and so-called tight oil prospects can be developed in a matter of months at a relatively cheap price. Because of the volatility of US oil and gas prices, drillers step up or slow down work based on their forecast of commodity prices, requiring them to move quickly.
Julian Lee, from the Centre for Global Energy Studies, said: "It's a recognition by BP that the shale gas and tight oil business is a very different business to conventional oil.
"I'm sure BP, like all the majors, is assessing its exposure to US shale. I'm not sure it's easily transferable into their business model."
BP has been less badly hit by the recent downturn in the shale industry than rival Shell, which was a relative latecomer to the boom. Shell wrote down the value of its North American shale assets by $US2.1 billion ($2.3bn) last August.
THE TIMES MARCH 07, 2014 12:00AM
BP is putting its US shale gas assets into a separate stand-alone business to improve its profitability after the fracking boom triggered a glut of cheap gas and squeezed industry margins.
All the British oil company's onshore oil and gas fields in the US, excluding those in Alaska, will go into the business. Among these are shale oil and gas fields holding 7.6 billion untapped barrels and 21,000 producing wells, which have been hit by a collapse in prices.
Based in Houston, away from the headquarters of BP's upstream division, the business will operate separately from the rest of the group. This would allow it to cut costs and make speedy decisions to compete with more nimble independent producers, which have pioneered the shale boom.
Lamar McKay, the head of BP's US upstream division, emphasised that there were no plans to sell the new business. "The intention is to build a successful business, not a less successful one and sell it off," adding the move would "would increase transparency of what it's worth within the company".
Analysts said the traditional business model of oil majors was not well suited to being a producer of shale oil and gas. Once a conventional discovery is made, it typically takes more than five years and billions of dollars of investment to bring it to production.
In contrast, shale gas and so-called tight oil prospects can be developed in a matter of months at a relatively cheap price. Because of the volatility of US oil and gas prices, drillers step up or slow down work based on their forecast of commodity prices, requiring them to move quickly.
Julian Lee, from the Centre for Global Energy Studies, said: "It's a recognition by BP that the shale gas and tight oil business is a very different business to conventional oil.
"I'm sure BP, like all the majors, is assessing its exposure to US shale. I'm not sure it's easily transferable into their business model."
BP has been less badly hit by the recent downturn in the shale industry than rival Shell, which was a relative latecomer to the boom. Shell wrote down the value of its North American shale assets by $US2.1 billion ($2.3bn) last August.