Switching Horses on Oil Strategy

Thunder Horse turns 10 next month. BP’s billion-barrel oil field, discovered in 1999 in the Gulf of Mexico, is a source of pride. It also is a reminder of what ails the oil majors.

Thunder Horse, which started up in 2008, will provide 42% of BP’s incremental upstream production over the next three years, according to analysts at J.P. Morgan Chase. Unfortunately, it is also one of BP’s few discoveries of such scale in recent memory. Neil McMahon of Sanford C. Bernstein calculates that less than half of BP’s additions to reserves over the past five years have come through its exploration efforts.

BP has done better recently, especially in terms of reserves replacement. At its latest strategy presentation, the company promised production growth out to 2020.

But that target is open to question. BP must contend with declining production at existing, mature fields and has cut its capital-expenditure budget. Meanwhile, it also has committed to maintaining its dividend.

Wall St. Journal