BP unveils $1.3B investment in US onshore, targets flaring, emissions reduction

BP is making a down payment on its plan to achieve net-zero carbon emissions by mid-century, recently announcing a $1.3 billion investment to end routine flaring from its US onshore operations by 2025.

The company is already targeting its footprint in the US' busiest shale play – the Permian of West Texas.

With an initial $300 million investment in the Grand Slam oil, gas, and water handling facility, BP has already reduced its flared volume in the Permian to just 2% of its total, down from as much as 16% in the fourth quarter 2019.

The new processing facility, located near Orla, Texas, began operation last summer using electrification to replace hydrocarbon fuels previously used to run equipment, compressors and generators.

"[We're] saving over 50,000 gallons of diesel per well every 20 days," David Lawler, CEO of bpx energy, said in an April 18 LinkedIn post. "Our objective is to eventually utilize 100% grid power for all wells."

In 2018, BP dramatically expanded its US onshore portfolio with a $10.5 billion acquisition from BPH. Since then, the company has been on a mission to modernize those assets, along with its existing portfolio, to better align with its net-zero ambition.

Flaring, gas production

As BP and other US drillers move to green their upstream operations, recent reductions in flaring and emissions are already having a bottom-line impact on domestic gas production and prices.

Over the past 18 months, flaring at US wells has fallen dramatically, led by large declines in the Permian and the Bakken of North Dakota. Smaller reductions have also come from the Eagle Ford, the Denver-Julesburg and the SCOOP-STACK. Combined, total flared volume from the five basins averaged just 400 MMcf/d in March – down from an estimated 1.8 Bcf/d as recently as August 2019, data from S&P Global Platts Analytics shows.

As previously flared gas makes its way to interstate markets, US production has staged a surprisingly strong recovery from last summer's pandemic-fueled decline, despite comparatively low rig counts.

In April, US output has averaged 91.2 Bcf/d with recent, single-day highs topping 92.5 Bcf/d. That's up from lows near 85 Bcf/d last May. Recent gains have been achieved despite a US rig count currently estimated at 541 – just 64% of its pre-pandemic level, data published by Enverus shows.

Henry Hub

The buoyancy in US gas production this year has stamped out much of the market's early bullishness over pandemic-related production declines. After topping $3/MMBtu last autumn, and again this winter, the Henry Hub 2021 forward curve has languished in the mid- to upper-$2s since March.

As reductions in gas flaring and emissions add more length to the US market, another trend related to the slowdown in drilling activity has magnified production strength recently – gas-to-oil ratios.

Data from Platts Analytics shows current GOR levels from associated wells at around 3 Mcf per barrel of oil, up from pre-pandemic levels closer to 2.5 Mcf/b.

Rising GORs likely reflect the growing average age of US producing wells, which tend to yield increasing volumes of natural gas as they mature. With associated wells in basins like the Permian and the Bakken being replenished at a much slower rate now than in the years prior to the pandemic, a larger percentage of total US production is now coming from comparatively older wells.