From The Wall Street Journal
A BP PLC project deep in Oman’s desert shows how big oil companies are taking hydraulic-fracturing techniques perfected in Texas to the global stage, where they had long struggled.
BP’s $12 billion Khazzan project launched last year on a complex roughly the size of London, surrounded by sand dunes and little else. One of the biggest fracking projects ever completed outside the U.S., Khazzan produces natural gas from rock so dense and deep beneath the desert that it was long thought too difficult and expensive to exploit.
It’s a breakthrough for a technology that revolutionized the oil-and-gas industry in the U.S. but had failed to gain ground elsewhere, with early setbacks in China, Europe and Russia. Now, big oil companies are drawing on expertise gained from their U.S. operations and making investments around the world again.
However, those efforts will depend in part on the Organization of the Petroleum Exporting Countries and its allies like Russia whose meeting this week in Vienna could have implications for crude prices. Rising oil prices—which breached $80 a barrel this year—have provided support for fracking projects, though executives say government policy and technological advances can also help make projects work at lower prices.
“It’s going to happen in other places,” BP Deputy Chief Executive Lamar McKay said.
Fracking isn’t new to the industry, but it’s become a key technology to help unlock resources trapped in tight rocks, like Khazzan. Gas production from such “unconventional” resources—so-called because they require special techniques to produce—has more than doubled over the past eight years outside of North America, reaching 6.6 billion cubic feet a day in 2018, according to Norway-based energy consultancy Rystad Energy.
In general, big oil companies are pushing ahead with so-called “short-cycle” projects, where production can be turned on and off depending on the oil price. Traditional projects have long life cycles and produce no matter how low prices go.
In Argentina, oil giants including Exxon MobilCorp , Chevron Corp. , Royal Dutch Shell PLC and BP have moved to frack the country’s massive shale reserves, though high costs have slowed progress. According to the International Energy Agency, oil production from fracking in the country will more than triple over the next five years to 110,000 barrels a day.
In Russia, PAO Gazprom Neft is now leading experiments with fracking the Bazhenov shale formation, the largest in the world. Wood Mackenzie forecasts production of shale gas in China will almost double by 2020, driven by investments from the country’s state-backed oil companies. Even Saudi Arabia has begun efforts to tap its most-difficult to pump natural gas by fracking.
These projects are “unconventional today but won’t be unconventional in time,” said Thierry Bros, senior research fellow at the Oxford Institute for Energy Studies.
Until recently, oil companies had made slow, costly progress in applying fracking to unconventional resources in the rest of the world. Regulatory hurdles and environmental concerns upended efforts in Europe.
Huge gas deposits in China have proved difficult to tap. International production remains a fraction of output in the U.S.
Even in the U.S., it took BP and other big oil companies years to get to grips with fracking. The shale revolution was initially dominated by smaller, more nimble players.
Now, Khazzan counts among BP’s most valuable assets, according to Wood Mackenzie, the Scottish energy consultancy, and it stands out as an important milestone in BP’s efforts to rebuild production after years of retrenchment following its Gulf of Mexico disaster in 2010.
Oman is an unlikely place to lead the race to globalize fracking. Its unconventional reserves are dwarfed by those found in China and Argentina, which have so far driven production growth outside North America. Khazzan’s geology isn’t easy to drill, and Oman initially lacked infrastructure, expertise and drilling data.
Even before the oil price crash in 2014, the potential in Oman was seen as relatively marginal. As BP pressed forward at the start of the decade, a similar nearby project fell through.
“Khazzan was quite a big risk,” said Liam Yates, a research analyst at Wood Mackenzie.
Fracking in Oman’s desert was also a completely new venture for BP. The technique works by using water, sand and chemicals to fracture underground rocks and hold the cracks open, allowing oil and gas trapped in the rocks to flow. That process needs to be repeated and repeated across the field. For BP, that meant any miscalculations or mistakes in its development plan would be magnified across hundreds of wells.
To make fracking in the desert work, BP used a supercomputer in Houston to interpret one of its biggest-ever seismic surveys and ran hundreds of simulations to figure out the best parts of the gas field to exploit. It called on teams of engineers with experience fracking in the U.S.
“We threw everything and the kitchen sink at that project,” said Ahmed Hashmi, BP’s head of technology for exploration and production.
Oman, though, enjoyed natural advantages that some seemingly more promising prospects lacked—chief among them a government anxious to incentivize development.
When early well tests were disappointing, BP spent years negotiating a secret gas price that would make the project profitable. The company also has maintained a close relationship with the government, which holds a 40% stake in the field. Elsewhere, domestic politics have often stymied efforts to take fracking global.
Now, the project is pumping 1 billion cubic feet of gas a day—more than enough to meet the average daily demand of Connecticut. Another 500 million cubic feet a day will come online in the next phase of the project. In an industry renowned for cost overruns, it came in $4 billion under budget.
The output comes after BP managers spent four years building sprawling production facilities in the remote Omani desert. Because the sand in Oman wasn’t the right shape or strength, the company has to fly in supplies from Brazil. The whole project is managed from a futuristic central control room in Khazzan dubbed “the Starship Enterprise” by BP’s Oman head of operations Dave Campbell.
“We brought the technology from U.S. operations to Oman,” said Yousuf Al Ojaili, BP’s president for Oman. “We’ve built up the expertise.”
