BP readies new Gulf of Mexico oil project Kaskida after Q1 output bounce

BP on May 2 talked up its oil and gas production prospects, including renewed planning for the giant Kaskida oil project in the Gulf of Mexico, as it reported a 6% increase in liquids production from its upstream oil unit in Q1 2023.

Presenting first-quarter results, BP Chief Financial Officer Murray Auchincloss underscored the company's February announcement of more modest carbon-reduction goals entailing a shallower decline in hydrocarbon production through the decade.

He highlighted investments planned or underway in the US, where both shale and offshore operations contributed to a first-quarter production bounce, as well as expansion of the company's Indian offshore gas production.

BP is eyeing nine projects that will together boost its production by 200,000 b/d of oil equivalent by 2025, including Mad Dog Phase 2, which came on stream in April, and the MJ gas field in the KGD6 block offshore India, which is close to starting up. BP's offshore projects are now contributing a third of Indian gas supply, Auchincloss said.

Speaking to investors, Auchincloss sketched out plans for the 4 billion barrel Kaskida oil discovery, saying a concept selection process was underway and that BP aimed for a final investment decision in 2024, with a price-tag "probably" in the region of $15 billion-$20 billion.

The renewed interest in Kaskida follows BP's startup of Mad Dog Phase 2 in the Gulf of Mexico, even as the UK major continues to pay out compensation for the 2010 Gulf of Mexico spill.

Confidence on Kaskida reflects technological progress since the discovery was made in 2006, including the ability to drill and hydraulically fracture in high-pressure Paleogene reservoirs, as well as the example of other companies, Auchincloss said, estimating current Paleogene production by the industry at around 500,000 b/d.

These factors, along with "streamlined concepts on development, [lead] you down a path where you get much, much more comfortable with Kaskida... It's an enormous resource base," he said.

On shale subsidiary BPX, Auchincloss outlined plans for a series of new Permian oil and gas processing facilities, with a second 30,000 b/d facility dubbed Bingo due on stream in the third quarter and set to double the current capacity provided by a facility known as Grand Slam.

"Bingo is about 30,000 b/d of [crude] oil and we have three more of these to come through 2024 and 2025, so that's building the Permian oil capacity up to 120,000 b/d," he said.

Downstream transition

Auchincloss outlined BP's emerging views on hydrogen fuel production, saying the company expected to meet its threshold of 10% returns on such projects and would initially focus on upgrades to its refineries, deriving the fuel either from natural gas -- so-called "blue hydrogen" -- or renewable resources — "green hydrogen."

"Probably the first projects that are going to happen on the hydrogen side are in the refineries. Probably green hydrogen at Cherry Point [Washington State], probably blue hydrogen at Whiting [Indiana] is our sense, and then green hydrogen across the refineries inside Europe," Auchincloss said.

He added the company was "in conversation" with customers on hydrogen fuel for shipping, saying: "There's the potential for green methanol to fuel tankers, or green ammonia to fuel tankers that are shipping products around the world. That's a potential that's starting to emerge."

"It's refineries and seaborne tanking that may be the things that move first."

Market outlook

On general market conditions, Auchincloss highlighted Chinese consumers as the driver for improving oil demand outside the US, saying Northwest Europe remained "a little bit soft."

"China really has been the main story where post the Covid lockdown we've seen strong demand on the retail side. That's why you've started to see cash flow picking up a little bit and we've seen an awful lot of retail demand both on the fuel side and on the electric vehicle charging side," Auchincloss said.

"We haven't seen as much industrial demand. We're only starting to see the first few cargos of LNG flow into China now," he said.

He also played down upstream cost inflation, saying labor cost increases were being offset by reduced materials and fuels prices. "We're really not seeing much inflation across the sector other than in wages," Auchincloss said.

In its results statement, BP reiterated it expected full-year 2023 production to be broadly flat, with slightly higher output from its oil production & operations and lower production in the gas and low carbon unit. Second-quarter production is expected to be lower than the first quarter due to maintenance.

Output from the oil production and operations unit was up 6% year-on-year at 1.01 million b/d in Q1 and gas production rose 5% at 2.06 Bcf/d. In its LNG-focused gas and low carbon unit, gas output rose 1% to 5 Bcf/d, BP said.