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BP's New Domestic Onshore Unit | Russell T. Rudy Energy LLC

According to a recent article in “Rigzone”, BP’s new domestic shale unit was prompted by the realization that onshore shale and deep water projects require different skills, management styles, and corporate cultures.  Deep water projects are like tailored suits and shale plays like Wrangler jeans; each is valuable in its own right.

In the rest of the world, as well as in the Gulf of Mexico, BP negotiates with a single mineral owner, usually the government, for exploration and production rights.  In the Lower 48 states, the operator must deal with a plethora of landowners.

Offshore, BP is exploring large areas to find a small number of very large reservoirs.  Each well is very expensive, often presents unique technical challenges, and a small number of wells can produce enormous quantities of oil and gas.  Shale plays are widely disbursed and the operator must prioritize as to potential and saturate selected areas with densely spaced wells.

Onshore wells might be cheaper, but so many are required to optimize production that it is essential to tightly control costs.  This is achieved through standardization, exploiting learning curve economies, and using an almost production line approach.

BP’s new shale unit will have a separate management team, at a separate location, with separate processes, policies and procedures.  The operator hopes that this approach will result in a nimbler, more innovative and less expensive organization which can significantly reduce the time required for decisions, and to bring discoveries on line.

The new unit will report operating results independently starting in 2015.  This will enhance accountability, and make it easier to spin-off, although BP did not state this as an objective.  As a late comer to the shale game BP, like many majors, might have overpaid for their assets and is trying to find new ways to quickly and economically exploit them.

Interestingly, BP’s new unit seems to emulate ExxonMobil’s strategy in maintaining XTO as a separate onshore/shale unit after the purchase in 2010.

To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/131942/Kemp.