I am trying to climb out from under an avalanche of correspondence, and I also hope to have the “Niches” article done by Monday morning. Until then, the latest from Money Morning on BP’s new oil discovery. As I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story; these stories are meant to spur discussion.
BP’s ‘Giant’ Discovery Gives the Gulf of Mexico New Life By Jason Simpkins Managing Editor – Money MorningBP PLC (NYSE ADR: BP) yesterday (Wednesday) announced a “giant” oil discovery in the Gulf of Mexico that may contain more than 3 billion barrels of oil. The find is evidence of the Gulf’s resurrection as a major oil producer, as well as the great lengths – or depths – to which major oil companies must go to find vibrant wells. The well, known as the Tiber Prospect, is one of the deepest wells ever drilled with a total depth of about 35,055 feet, or 6½ miles. An appraisal will be required to determine the size and potential commercial value of discovery, but preliminary estimates suggest the field is bigger than Kaskida, a 2006 discovery that boasted 3 billion barrels of oil equivalent (boe). “Tiber represents BP’s second material discovery in the emerging Lower Tertiary play in the Gulf of Mexico, following our earlier Kaskida discovery,” said Andy Inglis, BP’s head of exploration and production. “These material discoveries together with our industry leading acreage position support the continuing growth of our deepwater Gulf of Mexico business into the second half of the next decade.” BP is already the largest producer of oil and gas in the Gulf of Mexico, generating about 400,000 boe/day. But once they start producing, the Tiber and Kaskida wells could boost the company’s output in the region to 650,000 boe/day. BP did not say when the Tiber well would begin producing oil, but analysts don’t expect the field to start pumping until at least 2014. That seems optimistic, however, as BP’s last large-scale development in the Gulf – the Thunder Horse field – took nearly twice as long. That well was discovered in 1999 but didn’t start producing until just last year. Of course, the Thunder Horse platform offers a compelling case study for the revival of oil exploration and development in the Gulf of Mexico – once referred to as the “Dead Sea” by oil majors who believed the region was tapped out. Thunder Horse is ramping up its production to 300,000 barrels per day (bpd), which makes it the No. 2 U.S. producer behind Alaska’s Prudhoe Bay, BusinessWeek reported. In fact, Thunder Horse and projects like it have added about 1.2 million bpd to total U.S. output. U.S. crude oil production is expected to rise this year for the first time in nearly two decades. In the first seven months, the country has averaged 5.26 million bpd, the highest for the January-to-July period in four years, according to the American Petroleum Institute, an industry group. The deep waters of the Gulf of Mexico are now “one of the few bright spots in global oil production” Bob MacKnight, an analyst at PFC Energy told BusinessWeek. The Gulf now accounts for about 25% of domestic oil production and 15% of natural gas output through about 3,800 offshore production platforms, according to the U.S. Minerals Management Service. Of course, that production has come at a high cost. Exploration wells cost up to $200 million to bring onstream, and actual offshore platforms are even more expensive. Thunder Horse cost more than $1 billion to build and another $250 million more to repair after Hurricane Dennis knocked the massive structure on its side. Still, operating in U.S. waters in the Gulf of Mexico is easier and less costly taking on projects in countries such as Venezuela, Africa, Iraq, and Russia where political skirmishes and civil unrest often lead to costly setbacks. ————————————Money Morning Editor’s NoteWhy Is Beijing Investing $200 Billion in One Company? The answer is simple. This rail company hauls 25% of the world’s freight – but it only has 6% of the world’s track. Right now, freight supply is 65% shy of demand. Sales for this company have grown on average 47% over the last five year. And now, with a $200 billion infusion, it’s about to jump even higher. Estimates show the potential gains at 356%. Click here for the full report.
14 thoughts on “BP’s ‘Giant’ Discovery Gives the Gulf of Mexico New Life”
The price mechanism at work.
Who knows how much oil resides elsewhere in the globe, down this deep?
I doubt the Middle East has even scratched the surface on deep oil. Or heavy oil.
Meanwhile, the same price mechanism will be depressing demand, for years and years into the future.
And we have natural gas coming out of our rear ends for generations.
Happy Labor Day to all RR's readers. I always say, "I never met a productive man I didn't like." Apologies to Will Rogers.
When an article like this says the that the new BP find may 'contain more than 3 billion barrels' do they really mean 'recoverable' oil, and at what price? Sometimes I think the oil industry reporters are as deliberately cryptic as the ones that write biofuels articles . . .
Also, any idea what 'typical' operating costs are for a huge production platform like this that is producing 100,000 – 300,000 bbls per day?
have we yet drawn out significant oil from these depths? TUPI, CARIOCO, JACK2 have yet to reveal their true content and yield from these depths.
even if the true yield is triple today's expectations,from all 3 fields, what does the net world wide picture of capacity[flow] vs consumption[flow] look to be in 2014 and thereafter? will depletion rate still be larger than the earths production capacity?
the media may be failing us again with the narrow view hype.
We've been getting "Saved" quite often, here recently.
How much of that BOe is "oil?" Any guesses?
Is "Jack" expected to ever "turn a profit?"
Fran asks: "will depletion rate still be larger than the earths production capacity?"
From the article: "BP is already the largest producer of oil and gas in the Gulf of Mexico, generating about 400,000 boe/day. But once they start producing, the Tiber and Kaskida wells could boost the company's output in the region to 650,000 boe/day."
Let's assume that the journalist did his job, and that 250,000 BOE per day is the combined output of Tiber & Kaskida. Let's be optimistic and treat the Barrels Oil Equivalent as all Barrels of oil.
Let's also use some round numbers. Say, global oil production is 80 Million B/D and average global decline rate of existing production is 5% per year. That means global oil production will drop to 76 Million B/D in a year's time (absent any new investments).
So we drop 4 Million B/D production each year, and BP's discoveries could add 0.25 Million B/D in one year. Or, to put it differently, we need to see an announcement like this one from BP every 3 weeks for ever, just to maintain the current global oil production rate.
Yet our Best & Brightest are more concerned about fatuous wastes of time like alleged Anthropogenic Global Warming than about meeting the very real challenge of finite fossil fuels. Obviously, our Best & Brightest are not sustainable.
The BP announcement was (I believe) for oil in place, so given 3 billion bbls in place, we could assume something like a billion barrels recoverable reserves, and I think they typically quote a technically recoverable reserves figure, i.e. assuming price will support the development.
In addition to the inherent volumetric uncertainties in oil field volumetric estimates this early in the development stage, it's also unclear what the gas/oil ratio might be. BP reports Tiber as an oil discovery, but some fraction of that will almost certainly be in gas phase.
The IEA reports operating costs of deep water developments to be in the range of $32-$65 per barrel, elsewhere I've seen estimates as high as $90. Key uncertainties are oil price (and therefore service costs), recoverable reserves, flow rates, and expenses related to maintaining production rates in hostile subsurface environments. These costs are not just production costs but also capital costs incurred in drilling appraisal, development, and injection wells, constructing the platform(s), and laying pipelines. On top of this, there are exploration costs. A company exploring in the deep water is going to have to buy millions of dollars worth of seismic data, pay tens of millions in lease bonuses and royalties, support a large geoscience staff… and they are going to drill some dry holes. Discoveries like Tiber have to support regional analyses, dry holes and other non-productive pursuits, as well as exploration overheads like rents, legal costs, IT and HR departments, and the like.
Benjamin, I don't think there is very much heavy oil potential in the Middle East, at least on the Arabian peninsula, having studied the geology of the region for 8 years. If heavy oil existed and was significant in volumetric terms, drillers would have encountered it or field geologists would have mapped it by now. I'm not aware of any reported shallow heavy oil deposits in the region. Oil at the extreme depths reported by BP will I suspect be pretty rare, because with increasing burial depth comes increasing temperature which tends to cook the oil such that only lighter end hydrocarbons (i.e. natural gas) can exist. The BP find implies a very low geothermal gradient combined with very high rates of sediment deposition.
BP quotes Thunder Horse as being designed for 250,000 bopd and 200 mmcfgd. This would be about 283,000 boepd. So I'd guess a ballpark estimate would be about 10-20% gas on a BOE basis. I think Tiber is deeper than Thunder Horse so I'd expect that the gas-oil ratio would be higher.
Amen to that. Public commentary is largely absent on future decline rates. Some folks out there are commenting on the big find, saying the lack of a sharp oil price drop is evidence of price manipulation. Extending your example, current global supply will have declined by something in the range of 25 mmbopd by the time Tiber comes online.
Article from Wall Street Journal, 2006
"Saudi Arabia tests potential for unlocking heavy-oil reserves
Monday, July 10, 2006
By Bhushan Bahree in New York and Russell Gold in Bakersfield, Calif., The Wall Street Journal
With global energy demand soaring, Saudi Arabia, whose abundant reserves of light oil have supplied the world for decades, is looking to unlock its huge, hard-to-tap and largely unexploited reservoirs of heavy crude.
If it succeeds in overcoming the technical hurdles, the effort could significantly increase Saudi Arabia's oil reserves over the next several years, potentially adding some slack to tight energy markets. It would also be a blow to so-called peak-oil theorists who have forecast that world oil production is on the brink of peaking."
My understanding is that KSA has heavy oil deposits larger than its light oil, but why bother? They are not a free enterprise democracy, but rather they are a baboon thug-state, devoted to cartelizing oil production and supporting terrorism, and preventing women from driving cars or voting.
You caught me napping on that one Benjamin. Next time I'll double check before relying on memory. However, it's interesting that even after living over there for several years I never heard any mention of heavy oil, and there was none in the specific areas I looked after. I suppose that at the time ($10 to $20 oil) it was well below the radar screen and too far away from my focus. But you're right. Oh well, live and learn.
> we need to see an announcement
> like this one from BP every 3
> weeks for ever, just to maintain
> the current global oil production > rate.
Yes or to put it even more simply, BP just discovered enough oil to supply the entire world for another 35 days.
"My understanding is that KSA has heavy oil deposits larger than its light oil, but why bother?"
Don't know about Saudi, but Kuwait has very large shallow heavy oil deposits in the north of the country, by the border with Iraq. Since boundaries don't necessarily follow geology, it is a reasonable guess that Iraq also has heavy oil.
Kuwait has been trying to develop its heavy oil resources for over a decade — check out the sorry history of 'Project Kuwait'. In fact, if Californian, Canadian, or Venezuelan readers happen to have experience in heavy oil development, the Kuwait Oil Company wants to make you an offer you can't refuse — Today!
The fact that a country like Kuwait with vast light oil resources is trying to develop its heavy oil is yet another straw in the wind on the finite nature of fossil fuels. Time to get busy, people!
FYI Fossils From Animals And Plants Are Not Necessary For Crude Oil And Natural Gas, Swedish Researchers Find
Long story short, researchers demonstrate that petroleum can be generated by heat and pressure from methane.
"But the discovery has more benefits. The degree of accuracy in finding oil is enhanced dramatically – from 20 to 70 percent. Since drilling for oil and natural gas is a very expensive process, the cost picture will be radically altered for petroleum companies, and in the end probably for consumers as well.
“The savings will be in the many billions,” says Vladimir Kutcherov.
"To identify where it is worthwhile to drill for natural gas and oil, Vladimir Kutcherov has used his research to arrive at a new method. It involves dividing the globe into a finely meshed grid. The grid corresponds to fissures, so-called ‘migration channels,’ through underlying layers under the surface of the earth. Wherever these fissures meet, it is suitable to drill."
Russia's stated proven oil reserves have stayed at 60,000 billion barrels since 2003. That's rather opaque.
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