BHP to reduce US onshore rigs by 40% by July

Australia’s BHP Billiton will reduce its US onshore rig presence from 26 to 16 by July in response to lower oil prices.

Australia’s BHP Billiton will reduce its US onshore rig presence from 26 to 16 by July in response to lower oil prices.

Andrew Mackenzie, BHP’s chief executive officer, explained in the company’s operational review for the half-year ended Dec. 31 that it will instead focus on improvements in drilling and completions efficiency.

“Our ongoing shale investment program will remain focused on our liquids-rich Black Hawk acreage [in the Eagle Ford shale],” Mackenzie said. “However, we will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production.”

The company in 2011 entered the Eagle Ford—where a majority of the company’s US onshore rigs currently reside—in its $12.1-billion merger with Petrohawk Energy. The move was part of a $20-billion investment in US shale by a company whose expertise at the time was primarily in deepwater drilling.

Rod Skaufel, BHP's president of North American shale, during a visit to Houston last summer attributed productivity increases in the Eagle Ford to a continuous performance benchmarking system called the pacesetter program, which involves breaking down a well into sections of a hole and then looking across the company’s rig fleet to see which rig drilled each section the fastest (OGJ Online, June 3, 2014).

BHP’s onshore US liquids volumes rose 71% in the December 2014 half-year to a record 24.4 million boe, underpinned by the Black Hawk and Permian plays, where liquids production increased 81% and 107%, respectively. The company’s drilling and development expenditure totaled $1.9 billion.

Activity in the Permian and Hawkville in the near future, however, will be limited to the retention of core acreage, the company says. BHP’s dry gas development program will be trimmed to one rig in the Haynesville, with a focus on continued drilling and completions optimization ahead of full-field development.

BHP says the reduction in drilling activity will not affect its 2015 financial year production guidance, and the company remains confident that its shale liquids volumes will rise 50% during that period.

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