?BP America Inc. produces more than 2.7 billion cubic feet (Bcf) per day of natural gas, two-thirds of which comes from unconventional gas structures such as shale, coalbed-methane and tight-gas plays. At the recent Developing Unconventional Gas 2009 conference presented by Hart Energy Publishing LP in Fort Worth, Andy Hopwood, BP Energy’s vice president, outlined the company’s strategy to leverage its unconventional gas plays.
North American unconventional gas production has changed significantly since last year, when gas was selling at $9.80 per thousand cubic feet and 1,600 rigs were running. About 2 Bcf per day of gas demand has been destroyed and the rig count has fallen by 50%. The downcycle’s causes and speed are unprecedented, rendering forecasts based on historical statistics invalid, Hopwood said. New liquefied natural gas (LNG) projects that will produce 8 to 10 Bcf in the near term may affect U.S. prices, “although where the gas will go is still unclear,” he said. Yet, the U.S. continues to be an important element in BP’s portfolio, representing more than 10% of its global gas production.
“With all this uncertainty in my business, I must stand by the fundamentals,” said Hopwood. “That’s energy, which is fundamental to this economy. The market is efficient and gas is a clean and fundamental part of the mix.
“My focus is to be in quality basins, run safe and reliable operations, have great staff, keep a constant eye on technology and continue dialogues with suppliers and production-area communities. If you do that, there will always be good business to be had.”
Unconventional resources now make up 50% of domestic gas production, up some 20% from 20 years ago, he said. BP’s portfolio leverages coalbed methane in the San Juan Basin, tight gas in Wyoming and the Midcontinent and shale-gas assets acquired from Chesapeake Energy Corp. in 2008.
Developing unconventional gas in the U.S. is a “test-bed for unconventional gas applications, insights and experiences throughout the world,” said Hopwood, and major oil companies acknowledge the value of learning shale-gas production technologies.
Like conventional plays, the subsurface of an unconventional structure requires “a microscope,” he said. Wellbore placement, stimulation methods and efficient plan execution are also critical to unlocking the unconventional gas potential.
“This is going to be hard, particularly in these times, but I think stability in the activities we undertake is a unique attribute of an unconventional business,” he said. The more stable the business, the more it can be continually improved through technology.
“The unconventional capability was really at the heart of our deals last year,” said Hopwood. “We spent two years looking at unconventionals, basin by basin.”
BP acquired Woodford shale acreage from Chesapeake, both as a complement to its existing Arkoma Basin operations and to gain “the opportunity to roll up our sleeves and experience shale operations,” he said. “The joint venture with Chesapeake in the
Fayetteville enabled us to learn from their operations, to be a partner with them.”
Meanwhile, BP’s Haynesville assets are held by production, so “there’s no rush.” BP’s strategy is to take enough time to apply the best technologies, “starting again with the principal of working from the basin in. We have started a modest drilling program there. We will start shooting seismic later this year.”
One of the challenges in unconventional development is knowing when to stop experimenting and when to implement at scale, he said. Managing the water quantities required for stimulation is another hurdle.
On the other hand, producing unconventional gas in a “factory-type operation,” with continuous improvements of cableless and multicomponent seismic, improved stimulation methods, front-end planning and long-term supplier relationships will drive cost reductions.
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