) recently announced the start-up of a major project in the
Deepwater Gulf of Mexico. The Na Kika Phase 3 project came online
as first of the two new wells started oil production. This is the
third major project start-up for the company this year as it plans
to reverse the decline in production seen over the past few years.
These new projects start-ups are helping a great deal in improving
BP's operational outlook even as uncertainties associated with oil
spill liabilities remain. (See:
BP's Downside Risk From Climbing Oil Spill
Headquartered in London, BP is one of the world's leading oil
& gas multinationals with operations in more than 80 countries.
As a vertically integrated oil and gas major, it has both upstream
as well as downstream operations. The upstream division primarily
includes exploration and production activities for oil and gas,
while the downstream division focuses on producing refined
petroleum products such as gasoline.
We currently have a $50 price estimate for BP
, which is almost in line with its current market price.
See Our Complete Analysis For BP
BP has changed a lot over the last few years, primarily due to
divestments made by the company in order to fund charges associated
with the 2010 oil spill fiasco. By the end of 2013, the company had
completed divestments of around $38 billion. A majority of the
asset sales primarily included upstream installations, pipelines
and wells while the company has managed to retain most of its
(~90%) proven reserves. This has led to a sharp decline in
BP's production volumes over the last three years. The volume of
total hydrocarbons produced by the group fell by almost 21% since
2010 to 2,256,000 boe/d (barrels of oil equivalent per day) in
In a bid to recover its lost ground, BP started production from
as many as five new projects in 2012 alone. Having started 3 more
last year, the company plans to bring another 6 new projects online
by the end of this year. We therefore expect BP's production volume
to bottom out by the end of this year and gradually increase
The three projects started in 2013 include the Angola LNG and
the Atlantis North Expansion project in the Gulf of Mexico that
began production during the second quarter, and the North Rankin 2
project that came online during the third quarter. Located
approximately 85 miles off of the northwest coast of Western
Australia, the North Rankin 2 project aims to extend natural gas
supply from the aging North Rankin and Perseus fields by
extracting low-pressure gas. Below is a summary of the major
upstream projects started this year.
- January this year, BP started production from the West Chirag
platform of the Azeri-Chirag-Gunashli (
) field in the Azerbaijan sector of the Caspian Sea. The company
said that output from the platform would be ramped up during the
year as additional wells come online. The platform has a
capacity of 183,000 barrels of oil per day. BP holds a 35.8%
operating interest in the project.
- Earlier this month, Shell started up the Mars B project in
the Gulf of Mexico. BP holds 28.5% in the project, which is
expected to ramp up total hydrocarbon production from the Mars
field to 100,000 boe/d by 2016. In 2013, the Mars field produced
an average of over 60,000 boe/d.
- Most recently, BP announced the start-up of the Na Kika Phase
3 project, which included drilling and completion of two new
wells along with the development of the subsea infrastructure
supporting them and some new equipment to enhance production from
an existing well. The project is expected to boost Na Kika's
daily production from 130,000 boe/d to 170,000 boe/d.
Apart from these three, other projects that are slated to
start-up this year are also under construction and over 75%
complete, which further bolsters our belief that BP's upstream
production output should bottom out by this year. These new project
start-ups are not only expected to boost upstream production volume
but also operating margins. The company expects cash operating
margin from these projects to be twice as much of its average
upstream margin in 2011.
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