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By Jessica Resnick-Ault
NEW YORK, Dec 5 (Reuters) - BP Plc's decision to moveahead with a $9 billion project to drill in the Gulf of Mexicois the first step toward major oil companies moving forward withU.S. offshore plans postponed during crude's price rout.
Exploration and development of new wells in the Gulf slowedas crude prices cratered from over $100 a barrel in 2014to a low of $26.05 early this year.
The project, known as Mad Dog Phase 2, is the first new Gulfplatform to be sanctioned in a year and a half, since rival oilmajor Royal Dutch Shell Plc proceeded with developmentof its Appatomattox project in July, 2015.
BP's decision on the platform and infrastructure, announcedon Thursday, came after the oil major managed to cut projectedcosts for the project by more than 50 percent, BP said.
Mad Dog, which will have the capacity to pump up to 140,000barrels per day (bpd), has access to a proven crude supply andthe drilling will be completed in an area that requires lesstechnical complexity than some of the deepwater fields wherecompetitors have proposed projects. It is slated to startproducing oil in late 2021.
"They were able to reduce their capital expenditures, thefields that they pick happen to have the right DNA, and this isexceptional DNA," said Nansen Saleri, chief executive office ofQuantum Reservoir Impact, and a former head of reservoirmanagement for state oil company Saudi Aramco.
"When you're talking about 10,000 barrels per day, that'sMiddle East standards."
The return to U.S. deepwater is likely to be slow, Salerisaid, as oil prices still are not high enough for a rush backinto the Gulf.
Full reentry into the Gulf will require sustained benchmarkoil prices above $60 a barrel, far above the near $50 currentlytrading, he said.
BP is returning to expansion in the Gulf after a painfulhiatus following the 2010 explosion at its Macondo well, whichled to the worst offshore oil spill in U.S. history. BP has hadto pay over $55 billion in claims and costs associated with thespill.
The company maintained an active interest in the region inthe meantime, bidding for rights to develop territory that cameup for auction in the interim and working to drive down costs ofprojects kept on hold.
DOG DAYS
The U.S. Gulf, once prized for its abundant resources andlower political risk than alternatives such as West Africa, fellout of favor as technology unlocked cheaper production from U.S.shale fields onshore, creating a glut of production that couldbe more easily increased or throttled back in response to pricefluctuations.
The Gulf produced 1.5 million bpd of oil in September, thelatest month for which data is available, compared with a highof 1.7 million bpd in 2009, before shale's popularity grew.
"Some people say that deepwater is finished. Well, as youcan see from this, we have a very different view. Based on ourcurrent calculations Mad Dog will break even around the $40 perbarrel mark," Bernard Looney, BP's chief executive of upstream,told investors in June.
While producers have sanctioned relatively small $300million to $400 million projects, known as tie-backs, nostandalone projects have been approved since Shell'sAppatomattox.
Other U.S. drillers including Anadarko Petroleum Corp and Cobalt International Energy have platforms underreview in the Gulf, and Chevron Corp's Anchor project isalso being appraised.
BP may have the edge on competitors because Mad Dog islocked in Mycocene-era geological formations, according to WoodMackenzie. Those formations do not require the same level ofhigh-pressure, high-temperature drilling that Anadarko andCobalt's platforms targeting oil in Lower Tertiary rockformations may require.
"At the end of the day, these large companies need largeprojects, and deepwater is going to be where they are going tofind these large projects to move their needle," said ImranKhan, research manager at Wood Mackenzie. (Reporting By Jessica Resnick-Ault; Editing by Simon Webb andMarguerita Choy)
