BP Egypt.jpg” alt=”” />

For environmental groups across Australia, BP’s decision to abandon its exploratory drilling plans in the Great Australian Bight (GAB) was met with unalloyed celebration. The bight, a massive open bay stretching across the central and western sections of Australia’s southern coast, serves as habitat for many marine species, including vulnerable marine mammals such as southern right whales and Australian sea lions, which both rely exclusively on the GAB for their long-term survival.

To those who prioritise the bight’s continued protection over its economic development, BP’s decision – confirmed by Australian offshore oil regulator NOPSEMA in December after a period of uncertainty following BP’s initial withdrawal announcement in October – removes a significant ecological risk to the region while further discouraging other large oil companies considering drilling in the GAB, including Chevron and Australian producer Santos.

“BP’s decision to finally withdraw its risky plans for the bight has given Australians something to really celebrate this Christmas,” said The Wilderness Society’s South Australia director Peter Owen. “If BP with all its experience could not produce an acceptable drilling plan for the regulator, NOPSEMA, the remaining companies exploring in the bight will be wasting their shareholders’ money trying to pursue this folly.”

BP’s exit: the commercial argument

BP was awarded exploration licences for four blocks in the GAB’s Ceduna area in 2011, with Statoil jumping onboard with a 30% stake in the licences in 2013 after seismic data was acquired in early 2012. Hopes have been high for the hydrocarbon potential of a region that has been described as one of the last great offshore frontier exploration basins in Asia-Pacific, with the GAB’s total potential reserves pegged at around 1.9 billion BOE by Wood Mackenzie.

In a statement in October, BP noted that its decision to withdraw from the GAB was made primarily for commercial reasons following a review of the company’s upstream strategy earlier in 2016. At a time of oil price instability and industry consolidation, BP’s refreshed strategy has put greater emphasis on exploration projects that are most likely to create near to medium-term value, primarily leveraging its experience and infrastructure in regions where it already has a strong presence.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

With BP’s appetite for risk apparently diminished, a complex and lengthy exploratory drilling campaign in an environmentally sensitive region such as the GAB just isn’t the investment draw it might have been, despite the region’s potential.

“A complex exploratory campaign in a region such as the GAB just isn’t the investment draw it might have been.”

“This decision isn’t a result of a change in our view of the prospectivity of the region, nor of the ongoing regulatory process run by the independent regulator NOPSEMA,” said BP managing director for Australian exploration and production Claire Fitzpatrick in October. “It is an outcome of our strategy and the relative competitiveness of this project in our portfolio.”

The need to seek safer opportunities in challenging market conditions is hardly limited to BP, as the industry as a whole continues its drive to cut capital expenditure and limit its high-risk exploration ambitions as oil prices continue to struggle at less than $60 a barrel.

“Given the decline in oil price we’ve seen in the last two years, and its impact on corporate budgets, we’ve seen a shift in focus away from frontier drilling towards lower-cost opportunities with shorter lead times to production,” Wood Mackenzie Asia-Pacific upstream oil and gas research director Andrew Harwood told The Australian newspaper in April.

Environmental and political pressure over GAB drilling

While the shifting dynamics of commercial attractiveness was clearly the dominant factor in BP’s decision to suspend its plans in the GAB, it would be naïve not to acknowledge the other influences that would have fed into the company’s calculations.

For a start, the GAB is a remote deepwater region associated with technical challenges and harsh conditions. The last exploration well drilled in the region, in the Gnarlyknots permit area 300km off the Australian cost, had to be plugged and abandoned by Woodside and its partners Anadarko and Encana Corporation in 2003 before reaching target depth of 5,600m because of treacherous weather conditions.

From an environmental perspective, BP may well have felt that it had the capability to manage the risks of an exploratory drilling programme in the GAB, but the pressure applied by environmental groups is undeniable.

In 2015, The Wilderness Society commissioned an oil spill modelling study that described the potentially catastrophic effects of a range of spill events, from a relatively minor flow rate of 5,000 barrels a day, which, the study claimed, could see oil reach Western Australia and Victoria, to a Deepwater Horizon-esque disaster of 50,000 barrels, which would see oil slicks across the Bass Strait and even a chance that oil could reach the cast of New Zealand.

As a result of the high ecological stakes involved, NOPSEMA repeatedly refused to accept BP’s environmental case for drilling at the Stromlo-1 and Whinham-1 exploration wells, most recently requesting more information from the company in September. The regulator gave BP until 28 October to provide the requested data, but the firm announced its intention to pull out of the GAB before the deadline arrived.

With these sorts of pressures, not to mention long-standing concerns about the integrity of subsea bolts that are widely used in the offshore industry and which could have been used by BP’s rig contractor Diamond Offshore, it’s no surprise that from a commercial, regulatory and public relations standpoint, drilling in the Great Australian Bight had become a liability for BP by late 2016.

Playing it safe: BP to explore closer to home

Under BP’s refreshed exploration strategy, the company, like many others, is looking to maximise near-term gains by focusing exploratory drilling in regions where it already has an established presence. This includes large new investments in the UK North Sea, despite ongoing concerns about the region’s maturity and declining reserves.

As well as bringing the large-scale Quad 204 and Clair Ridge developments on-stream in the coming months, BP has acquired stakes in a number of new North Sea exploration projects, including investing in 30% and 40% stakes, respectively, in the north and south of Nexen’s P2062 licence west of Shetland, which incorporates the Craster gas and condensate prospect, with exploratory drilling on Craster expected to begin in mid-2017.

East of Shetland, BP has acquired minority stakes in several Statoil-operated licences, with drilling at the Jock Scott also set to begin drilling later in 2017. In total, BP expects to double North Sea oil production to 200,000 barrels a day between 2015 and 2020.

“BP is looking to maximise near-term gains by focusing exploratory drilling in regions where it already has an established presence.”

Offshore Egypt is another region in which BP has a long history, with five decades of operations reflected in the company’s nearly 15% share of the country’s total oil production and 30% share of gas production. Alongside Italian major Eni, BP is making big bets off the coast of Egypt in the near-term.

In February BP finalised the purchase of a 10% stake in Eni’s massive Zohr gas field development, purportedly the largest Mediterranean natural gas discovery in history. Taking in significant recent discoveries such as the shallow water Baltim South Development Lease in the East Nile Delta, Egypt has been yielding a steady stream of discoveries for BP, and it looks like the company remains confident in the country’s political stability and attractiveness as an investment destination.

“Some pretty good things are happening here for BP, like Eni,” BP chief executive Bob Dudley said at an industry conference in February. “In 2016-17 we’re investing more money in Egypt than any country in the world, so this is important for us; we have confidence in the government.”

Meanwhile, the future of the Great Australian Bight, and the question of whether this hostile and sensitive offshore region can be developed safely will be decided by remaining players such as Chevron, which has reiterated its commitment to drill four exploration wells by the end of 2018. For the time being, BP’s interests lie considerably closer to home.