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    BHP strives to increase shale production

    From School of Hard Knocks to Texas success

    A few short years after its big jump into the shale business, Australia-based BHP Billiton Ltd., known for its offshore developments, has been “relentless about productivity” and expects to see positive earnings from its production-focused shale division next fiscal year.

    Speaking at a media briefing Monday in Houston, Rod Skaufel, BHP’s asset president of shale, detailed the company’s drive to increase shale production. The company’s petroleum division produces roughly 700,000 boe/d. Forty two percent of that can now be attributed to shale.

    Through a $4.8 billion purchase of assets from Chesapeake Energy and a $12.1 billion merger with Petrohawk, BHP gained a large foothold in the US onshore shale business with assets in the Eagle Ford, Permian, Fayetteville, and Haynesville. Today, the company has 1.5 million net acres across the four plays.

    BHP Billiton’s Tim Cutt: “I think shale will be our growth engine for the foreseeable future…”

    Like others in the onshore US shale business, BHP has its sights set on the liquids-rich Eagle Ford. Currently, the company has 25 rigs running onshore US. Seventeen of those are working the Eagle Ford where production is averaging 170,000 boe/d. The company has dedicated $3.0 billion of its $3.9 billion onshore US budget for fiscal year 2014 to the Eagle Ford.

    Skaufel expects nearly 75% of the company’s fiscal year 2014 onshore drilling activity to be focused on the play, mostly in the Hawkville area, which covers 250,000 net acres in LaSalle, McMullen, and Live Oak counties; and the Black Hawk area, which covers 70,000 net acres in DeWitt and Karnes counties. In Black Hawk, which Skaufel described as “as good as it gets in the Eagle Ford,” drilling costs are just above $4.0 million/well. Fourteen rigs are currently running in the area.

    While BHP is now one of the most active unconventional operators in North America, the company experienced a steep learning curve. “It was tough getting into [the shale business]” Skaufel said, noting the company’s costs were higher than those of both Chesapeake and Petrohawk.

    But, he said, the company “revamped over the course of the last year,” investing heavily in diagnostics to validate models and gather insights as a way to improve value and increase efficiency. “You learn through the School of Hard Knocks.”

    “Shale is about continuous improvement,” he said. “I want my next well to be cheaper than my last well. I want my next well to be more productive than my last well,” noting the company can do more running 25 rigs today than it did with 45 rigs a few years ago.

    In fact, in the Black Hawk area over the last six quarters, BHP has seen a 25% improvement in both time and costs. Through continuous analysis, the company discovered that, with by spending an additional $1.5 million per well to optimize completion, the company could increase estimated ultimate recovery by more than 20%.

    Overall, the company has seen a 75% year-on-year increase in its liquids production and expects its liquids rate to increase to roughly 200,000 barrels by fiscal year 2017. The $4 billion per year the company is currently investing in North American shale is expected to continue until at least the end of the decade.

     

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