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BP’s Mad Dog Phase 2 leads the oil pack’s return to the Gulf of Mexico

mad dog phase 2

On Friday, BP announced it had cut costs on the Mad Dog Phase 2 project by 50 per cent. Reuters file photo by Luke MacGregor.

Mad Dog Phase 2 first new Gulf platform sanctioned in 18 months

By Jessica Resnick-Ault

NEW YORK, Dec 5 (Reuters) – BP Plc’s decision to move ahead with a $9 billion Mad Dog Phase 2 project to drill in the Gulf of Mexico is the first step toward major oil companies moving forward with U.S. offshore plans postponed during crude’s price rout.

Exploration and development of new wells in the Gulf slowed as crude prices cratered from over $100 a barrel in 2014 to a low of $26.05 early this year.

The Mad Dog Phase 2 project is the first new Gulf platform to be sanctioned in a year and a half, since rival oil major Royal Dutch Shell Plc proceeded with development of its Appatomattox project in July, 2015.

BP’s decision on the platform and infrastructure, announced on Thursday, came after the oil major managed to cut projected costs for the project by more than 50 per cent, BP said.

Mad Dog, which will have the capacity to pump up to 140,000 barrels per day (b/d), has access to a proven crude supply and the drilling will be completed in an area that requires less technical complexity than some of the deepwater fields where competitors have proposed projects. It is slated to start producing oil in late 2021.

“They were able to reduce their capital expenditures, the fields that they pick happen to have the right DNA, and this is exceptional DNA,” said Nansen Saleri, chief executive office of Quantum Reservoir Impact, and a former head of reservoir management for state oil company Saudi Aramco.

“When you’re talking about 10,000 barrels per day, that’s Middle East standards.”

The return to U.S. deepwater is likely to be slow, Saleri said, as oil prices still are not high enough for a rush back into the Gulf.

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Full reentry into the Gulf will require sustained benchmark oil prices above $60 a barrel, far above the near $50 currently trading, he said.

BP is returning to expansion in the Gulf after a painful hiatus following the 2010 explosion at its Macondo well, which led to the worst offshore oil spill in U.S. history. BP has had to pay over $55 billion in claims and costs associated with the spill.

The company maintained an active interest in the region in the meantime, bidding for rights to develop territory that came up for auction in the interim and working to drive down costs of projects kept on hold.


The U.S. Gulf, once prized for its abundant resources and lower political risk than alternatives such as West Africa, fell out of favor as technology unlocked cheaper production from U.S. shale fields onshore, creating a glut of production that could be more easily increased or throttled back in response to price fluctuations.

The Gulf produced 1.5 million b/d of oil in September, the latest month for which data is available, compared with a high of 1.7 million b/d in 2009, before shale’s popularity grew.

“Some people say that deepwater is finished. Well, as you can see from this, we have a very different view. Based on our current calculations Mad Dog will break even around the $40 per barrel mark,” Bernard Looney, BP’s chief executive of upstream, told investors in June.

While producers have sanctioned relatively small $300 million to $400 million projects, known as tie-backs, no standalone projects have been approved since Shell’s Appatomattox.

Other U.S. drillers including Anadarko Petroleum Corp and Cobalt International Energy have platforms under review in the Gulf, and Chevron Corp’s Anchor project is also being appraised.

BP may have the edge on competitors because Mad Dog is locked in Mycocene-era geological formations, according to Wood Mackenzie. Those formations do not require the same level of high-pressure, high-temperature drilling that Anadarko and Cobalt’s platforms targeting oil in Lower Tertiary rock formations may require.

“At the end of the day, these large companies need large projects, and deepwater is going to be where they are going to find these large projects to move their needle,” said Imran Khan, research manager at Wood Mackenzie.

(Reporting By Jessica Resnick-Ault; Editing by Simon Webb and Marguerita Choy)

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