BP Starts Skarv Production

BP Plc (BP - Analyst Report) has successfully commenced production from the Skarv field in the Norwegian Sea. The oil giant had a key operational objective of bringing the field — one of its core higher-margin areas –– into production by the end of 2012.

Located approximately 130 miles west of the Norwegian coast in water depths of up to 1,500 feet, the Skarv field is expected to reach a maximum daily production rate of 165,000 barrels of oil equivalent per day/BOE/d (40,000 BOE/d net BP) by 2013-end. During the first six months of production, BP expects the field to yield around 125,000 BOE/d before achieving the year-end target.

The Skarv field, which was discovered in 1998, is estimated to hold oil and condensate reserves of around 100 million barrels and gas reserves of about 1.5 trillion cubic feet. BP, the operator, has a working interest of 23.8%. Its partners, Statoil ASA (STO - Analyst Report), E.ON Ruhrgas and PGNiG hold 36.2%, 28.1% and 11.9%, respectively.

Skarv − with an expected field life of around 25 years − is part of the British oil giant’s major upstream projects that it commenced last year. The development of the field is an integral part of its plan that comprises a new highly advanced floating production, storage and offloading (FPSO) vessel, mainly to withstand harsh waters.

The development plan also includes five subsea drilling templates and a 50-mile 26-inch gas export pipeline that is connected to the Gassled transportation system, enabling it to export to European markets.

With this start-up, BP has certainly started the year on a positive note. The company has moved a long way since the April 2010 oil spill in the Gulf of Mexico (GoM) that killed 11 workers and poured 4.9 million barrels of oil into the Gulf over 87 days, polluting shores from Texas to Florida.

Since then, BP remains busy in reshaping its portfolio through the divestment of smaller non-core properties to pay spill-related costs, while holding on to potential big resources, like Skarv. Hence, refocused upstream activities and a leading position in the Gulf region following the Macondo incident will definitely help BP in overcoming its near-term tribulations.

BP carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We also maintain our long-term Neutral recommendation on the company.