BP plc will continue to pump out “prolific” natural gas volumes from the Haynesville Shale as hedges are in place pricing the supply at around $4.00/Mcf through this year, CEO Murray Auchincloss said Tuesday.
Auchincloss discussed first quarter performance during a conference call. He was asked why domestic gas volumes continue to be high in light of low commodity prices.
BPX Energy, the U.S. onshore division, produced 1,596 MMcf/d during the first quarter, weighted to the Haynesville. In 1Q2023, U.S. gas production was 1,196 MMcf/d. During the fourth quarter, domestic gas output was 1,515 MMcf/d.
BP has reduced the price risk of its existing gas supply through hedging, Auchincloss explained.
“We’ve hedged out natural gas at around $4 through ‘23 and ‘24,” he said. “So obviously, we’ve kept that going while we’ve got those hedges in place.”
Most of the activity in the Haynesville is “retention drilling…The Haynesville is prolific where we drill. And the amount of production that comes online is sustainable and quite high per well.”
The company is “in absolutely the best spot of the Haynesville,” Auchincloss added. And by improving capital efficiencies, it “makes sure that we get fabulous production out of these wells” at a lower cost.
It remains a question as to when BPX could ramp up gas activity further. By early 2025, additional LNG export capacity is set to come online on the Gulf Coast.
The company “will have a choice as we move into 2025, based on what we see on gas pricing,” Auchincloss said of U.S. natural gas production. The question will be “about whether or not we ramp the gas drilling back up, or we stick with liquids and oil.”
Regardless, he said, “we'll be very, very value-driven. We won't be volume-driven. And we'll see where the best value is and then apply our rig count at that rate.”
‘Well-Underpinned’ LNG Arm
The commodity price environment “remains unpredictable, as we have seen with volatility in global gas prices over the past few years. So, we are focused on what we do control…”
For the liquefied natural gas business, for example, the target of 25 million metric tons/year (mmty) by 2025, up from 23 mmty in 2023, “is well underpinned.”
Auchincloss pointed to some finalized LNG contracts, including two long-term sales and purchase agreements (SPA). In April, BP netted a SPA with Korea Gas Corp. BP agreed to supply a total of 2.5 mmty until 2035. In another with Austria’s OMV Group, up to 1 mmty would be supplied. An LNG offtake contract also was secured with the Western Canada export project Woodfibre LNG totaling 1.95 mmty. A nine-year SPA beginning in 2026 was completed with Oman LNG for 1 mmty.
Overall, BP plans to ramp up five “major” natural gas and oil projects this year, Auchincloss told investors.
“In addition, we expect BPX 2025 production to grow by 30-40% compared to 2022 levels.” The forecast production from the U.S. onshore by 2030 is 650,000 boe/d-plus.
BPX is boosting the “liquids levels” from the Eagle Ford Shale in South Texas. And in the Permian Basin, an additional 100,000 b/d of natural gas liquids (NGL) capacity has ramped up at Checkmate, the third central gathering processing facility.
Working today in the Permian “is a bit looser” than in other areas, the CEO said. “There are more rigs available. Obviously, from low natural gas prices, that's making the supply side of it a little bit better…
“We're not feeling any constraints on export at this stage,” to transport supply to markets. A fourth Permian NGL processing facility is scheduled to go online in 2025. By then, BPX should be delivering “somewhere between 100,000 and 120,000 b/d” of NGLs, “depending on reservoir responsiveness in the Permian,” the CEO said.
“We've got most of our rigs focused on the liquids window in the Eagle Ford right now, given where natural gas prices are. So there should be an uplift there.”
Also in U.S. operations, BP-led Archaea Energy, the largest renewable natural gas (RNG) producer in the country, earlier this year brought online a plant in Kansas City.
Three Archaea Modular Design plants are online today with RNG capacity of more than 3.5 MMBtu/year. Five additional RNG plants now are being commissioned.
Lower Production, Prices
In total, BP’s global business produced 4,708 MMcf/d of natural gas on average in 1Q2024. That compared with year-ago volumes of 4,962 MMcf/d and sequential volumes of 4,637 MMcf/d.
Realized natural gas prices averaged $5.45/Mcf in 1Q2024, compared with $7.41 a year ago and $6.18 sequentially. Total hydrocarbons realized prices averaged $36.64/bbl from $46.94 in 1Q2023 and $40.17 in 4Q2023.
In the Oil Production & Operations arm, natural gas production averaged 2,354 MMcf/d, compared with 2,060 MMcf/d in 1Q2023. The realized gas price averaged $2.66/Mcf, compared with $6.57 in 1Q2023.
BP’s underlying replacement cost (RC) profit, similar to U.S. net earnings, was $2.72 billion ($16.24/share) in 1Q2024, compared with $4.96 ($27.74) in 1Q2023. Operating cash flow declined to $5.0 billion from $7.6 billion.
The RC profit for Gas & Low Carbon Energy was $1.04 billion in 1Q2024, compared with profits of $7.35 billion in the year-ago quarter.
