Exclusive: BP explores forming joint ventures to boost US shale -sources
LONDON/NEW YORK, Oct 30 (Reuters) - BP (BP.L) is seeking to form joint ventures around its U.S. onshore natural gas fields to expand production and cut costs as rival energy giants rush to scale up shale businesses, three sources with direct knowledge of the talks told Reuters.
London-based BP has held talks in recent weeks with several companies about tying up operations in the Haynesville shale gas basin, the three sources said.
BP is also considering creating joint ventures in the Eagle Ford basin, but the talks do not include its positions in the oil-rich Permian basin for now, two of the sources added.
The ventures could cover pieces of land of varying sizes, and would not have to be everything BP has within the basin.
The rapid growth in U.S. shale oil and gas operations over the past 15 years has upended global markets, turning the U.S. into a major exporter of energy.
But scale is key to maintaining low costs in the shale.
By growing the size of its operations as part of a joint venture, BP and its partners would be able to drill more, longer shale wells to increase output, while sharing costs between the parties.
A BP spokesperson declined to comment.
The push to grow has driven a wave of consolidation efforts among shale producers this year.
Just this month, Exxon Mobil and Chevron both announced plans to acquire rivals Pioneer Natural Resources and Hess, respectively, for a combined $113 billion, two of the largest mergers in the sector in decades.
By pursuing joint ventures, BP can achieve growth ambitions while avoiding spending billions on acquisitions. However, agreeing on the value of the combined assets and how to divide the venture's ownership are among the hurdles BP would have to clear with potential partners, the sources said.
BP plans to invest around $2.5 billion per year in its shale business, with an average of 12 to 15 rigs in operation. Production is expected to double to 650,000 barrels of oil equivalent per day (boed) by 2030 from 2022 levels, the company said in a presentation last month.
BP has natural gas reserves of 13 trillion cubic feet in the Haynesville, where it owns more than 500,000 net acres, it said.
The company already has a joint venture in the Eagle Ford with privately-held Lewis Energy since 2010. Since then though, BP added to its position in the south Texas basin when it bought the onshore U.S. operations of BHP for $10.5 billion in 2018.
BP aims to sharply slash greenhouse gas emissions and grow renewable and low-carbon energy businesses in the coming decades.
Earlier this year the company scaled back plans to cut oil and gas output by 2030, targeting a 25% reduction from 2019 levels instead of the previous 40% reduction target, as investors press the board to focus on high-margin operations.
Interim CEO Murray Auchincloss, who took over from Bernard Looney last month after his abrupt resignation for failing to disclose relationships with employees, told investors at an event in Denver this month that BP will be able to maintain oil and gas production steady for years.
Although this move by BP may seem a surprise, it's not. BP, as BPX, has been working with other Haynesville operators to drill wells across multiple units for some time. In May of 2019, Goodrich applied to the state to drill HC (Horizontal Cross) wells that included a Haynesville unit operated by Chesapeake. This was a specific request but also an attempt to have the Office of Conservation end it's long standing rule allowing only one operator per drilling and production unit. Once the state approved that application, the door was opened for any other Haynesville operators who wished to drill HC wells that included a unit operated by a cooperating competitor. The reason that Haynesville operators would cooperate in this manner is the desire to drill long lateral horizontal wells. The desire for longer lateral wells eventually led to operators trading drilling units. Many of the companies that applied to drill long laterals that included another operators' unit eventually ended up acquiring the operatorship of that unit.
There is another reason why we see this announcement in BP's name. Recall that BP acquired the bulk of their units from BHP who acquired them from Petrohawk. Although the original Haynesville Shale land rush included no reason for operators to stack units north to south, Petrohawk ended up with the fewest such "stacks". Petroahawk's land leasing program took a big hit in 2008 when their main source of credit, Lehman Brothers, was allowed to go bankrupt. Petrohawk had numerous drilling units that were not adjacent to other of their units and many times the next closest Petrohawk unit was miles away. I coined the term, "stranded units", back then to emphasize how scattered and unconnected were Petrohawk's units. At that time the main problem was building out infrastructure to accommodate producing wells. The more units that an operator had grouped together, the more efficient they could be in building out the infrastructure. Back then long lateral, multi-unit wells were not allowed or foreseen. Now all Haynesville operating companies want to drill the longest laterals possible.
Thank you for your insight on this announcement. Initially it did seem like a surprise to me as well. I also wondered whether BP wants to position themselves as a dominant player in the growing LNG export market which the Haynesville Shale seems ideally positioned for.
You're welcome. BP (BPX) wants the cost advantages of long lateral wells but needs other operators to cooperate in order to drill those long laterals. I think BP and other Haynesville/Bossier operators are looking at their assets as a more mature trend. How do you squeeze the most profit out of your Haynesville assets over the last ten to fifteen years of the play?
Another factor to consider is the corporate spending aspect. BP may spend more per well than other operators because of internal policies and procedures. Partnering with a leaner and nimbler operator will add efficiencies. BP supplies cash and expertise if needed. Medium sized operator supplies lean and efficient operation. As an example, look at the Exxon/XTO relationship.