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BP makes new Oil discovery

Source: Reuters - Thu 3rd Sep 2009

Oil major BP said it has made an oil discovery in the Gulf of Mexico that analysts believe could contain more than 1 billion barrels of recoverable reserves, reaffirming the Gulf's strategic importance to the industry.

BP said in a statement on Wednesday it had made the "giant" find at its Tiber Prospect in the Keathley Canyon block 102.

Rig contractor Transocean said the Tiber well was the oil and gas industry's deepest, at 35,050 feet (10,683 meters) in 4,130 feet of water.

Further appraisal will be required to ascertain the size of volumes of oil present, but a BP spokesman said the find should be bigger than its nearby Kaskida discovery, which has more than 3 billion barrels of oil in place.

Estimates of recoverable reserves range from around 20 percent of oil in place.

"Assuming reserves in place of 4 billion barrels and a 35 percent recovery rate, BP's proven reserves ... would rise by 868 million barrels equivalent to 4.8 percent of the group's 18.14 billion barrels of proven reserves" Aymeric De-Villaret, oil analyst at Societe Generale, said in a research note.

BP, the biggest oil producer in the United States and biggest leaseholder in the Gulf of Mexico, has a 62 percent working interest in the block, while Brazilian state-controlled Petrobras owns 20 percent and U.S. oil major ConocoPhillips owns 18 percent.

Iain Armstrong, analyst at Brewin Dolphin, said the discovery may have implications for long-term oil prices. 

"It will ease concerns about peak oil because it shows there is life left in these mature areas" he said, adding that it could be the second half of the next decade before the find is producing.

The discovery also bodes well for other exploration in that part of the Gulf of Mexico, including at Royal Dutch Shell's nearby Great White field, said Jason Kenny, oil analyst at ING in Edinburgh.

BP shares, which had been trading slightly down ahead of the statement, rose 4.3 percent, outperforming a 1.75 percent rise in the DJ Stoxx European oil and gas sector index.

The Gulf of Mexico has become increasingly important to Western oil majors as oil-rich countries such as Saudi Arabia, Venezuela and Russia reserve their richest fields to be developed by their state-owned oil companies.

The Gulf is especially attractive, because it offers high profit margins, due to relatively low taxation compared with countries such as Russia and Nigeria, and because of the low political risk.

As nearer-shore discoveries dry up, companies have pushed further out to sea, which has forced them to develop new technologies to detect and extract the oil.

The prospects for massive discoveries in the deep water of the Gulf of Mexico is also good news for U.S. politicians' ambitions to reduce the country's reliance on imported oil, although oil executives doubt the United States is capable of becoming self sufficient in oil.

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