BP plans full return to gulf drilling this year as output sags

BP Plc is preparing its rigs and workers to resume full drilling operations in the Gulf of Mexico, seeking to end a 17-month production slump following the worst U.S. oil spill.

The company has returned two rigs to the region’s deep waters and aims to get three more drilling by the end of the year, according to people with knowledge of BP’s plans, who declined to be identified because the program hinges on gaining approval from regulators.

For Chief Executive Officer Bob Dudley, who took the helm a year ago this week, reviving Gulf production is vital because they are the company’s most profitable fields. BP has lagged behind rivals in resuming drilling in the region and Goldman Sachs Group Inc. downgraded its recommendation because of lack of progress in the Gulf.

“Nothing else BP is doing in the world offers as much growth potential as the Gulf of Mexico,” said Colin McLean, chief executive officer of SVM Asset Management Ltd. in Edinburgh, which has about 700 million pounds ($1 billion) of assets under management and has sold all its BP shares. “Prospects in the Gulf are probably improving, but BP needs to be able to get production up.”

Spokesman Robert Wine declined to comment on BP’s drilling plans in the Gulf of Mexico.

A return to the Gulf is part of Dudley’s campaign to repair BP’s standing with investors, regulators and the U.S. public. The company took a $41 billion charge after the spill and has yet to get approval to drill new wells after the blowout on the Deepwater Horizon that killed 11 and started the leak.

Green Canyon

BP received permission to plug a well in the Green Canyon basin on Sept. 8 with the Development Driller II rig, owned by Transocean Ltd., according to data on the website of the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement, or BOERME. The Development Driller III started an abandonment procedure in July in the same block near the Atlantis platform. The jobs are scheduled to last into October, the permits show.

The Discoverer Enterprise, also owned by Transocean, is set to work near the Thunder Horse platform. Ensco Plc’s DS-3 is slated to drill development wells in the Na Kika prospect, and Seadrill Ltd.’s West Sirius rig is scheduled for work on Kaskida, according to two people with knowledge of the plans. BP hopes all three rigs will be operating this year, another person said.

BOEMRE spokeswoman Melissa Schwartz confirmed in an e-mail that BP had received permission to modify wells at the Atlantis field. She declined to comment further on any permit applications.

Global Slump

BP’s problems in the Gulf have contributed to a global slump in output, which sank 11 percent in the second quarter after the company sold off $25 billion of assets in mostly producing fields. It also had longer turnarounds and maintenance periods as it implements higher safety standards and said production is likely to average 3.4 million barrels of oil equivalent a day this year, the lowest since 2001.

Gulf of Mexico oil is more than twice as profitable as production from the rest of BP’s portfolio, yielding about $60 in profit to the company when oil prices are $100 a barrel. In 2010, the Gulf of Mexico accounted for 28 percent of the company’s cash flow and just 10 percent of production, according to research by Citigroup Inc. analyst Alastair Syme.

The company’s payments into the $20 billion fund for spill victims demanded by President Barack Obama uses Gulf production as collateral. BP’s output in the Gulf has dropped to about 250,000 barrels a day from about 390,000 barrels a day before the spill, according to the company.

‘Drilling Backlog’

“BP may be able to start getting rid of its drilling backlog in the Gulf by the end of the year,” said Iain Armstrong, analyst at broker Brewin Dolphin Ltd. in London. “The market will get excited when BP starts getting drilling permits in its own name.”

BP on July 15 said it will implement a higher standard of safety in its drilling than regulations require. It will now only use blowout preventers on the Gulf floor with at least two so-called blind shear rams, which seal wellbores by cutting through the drill pipe. The blowout preventer for the Deepwater Horizon had one blind shear ram that failed to cut off oil and gas from the well. BP will also set up a real-time drilling operations center in Houston.

Dudley said July 26 that BP is eager to “get back to work” in the Gulf, working closely with regulators, and that the pace of BP’s return depends on getting approvals for new wells. He said the U.S. Bureau of Ocean Management says BP won’t be held to a higher standard than its peers in its applications.