Vast oil deposit found in Gulf

Discovery could ease supply woes, but steady production is years away

September 06, 2006|By Elizabeth Douglass | Elizabeth Douglass,LOS ANGELES TIMES

Chevron Corp. and two partners said yesterday that they had tapped a potentially huge source of oil in the Gulf of Mexico's deep waters, raising hopes that further discoveries in the region could help ease the nation's oil supply woes.

The successful test of the deepest well ever drilled in U.S. territory showed such promise that some think the undersea oil pool could be the largest domestic discovery of crude since Alaska's Prudhoe Bay field began flowing nearly 40 years ago.

"An opportunity like this only comes once every few decades," said Daniel Yergin, chairman of Boston-based Cambridge Energy Research Associates. "It holds out the prospect that this means more supply, and more supply is good news for consumers."

The geologic formation being targeted by Chevron's group and others could begin producing oil steadily as early as 2012, and could yield 800,000 barrels of crude a day, which would be about 11 percent of total U.S. production, according to an August report from Yergin's group.

Chevron, whose partners include Devon Energy Corp. of Oklahoma and Norway's Statoil, would not specify the size of its find except to note that the deep-water gulf could hold 3 billion to 15 billion barrels of oil and natural gas.

Although the discovery suggests that the undersea region holds more oil than previously thought, experts warn that the crude will be expensive to extract and years in coming.

What's more, the growing demand for oil in the United States and elsewhere could quickly eat away the expected production gains.

Also, there is the uncertainty that comes with trying to figure out how much oil lies so far beneath the earth's surface.

"It's phenomenal if it's there," said Matthew Simmons, who heads Simmons & Co., a Houston investment banking company that specializes in energy. "But until you get a field on production, you don't really know what's there.

"It's a nice positive, but the U.S. still has a big difference between its consumption and indigenous production," said Art Smith, chief executive of energy consultant John S. Herold. "We'll still be importing more than 50 percent of our oil needs."

Oppenheimer & Co. analyst Fadel Gheit said the Chevron-led partnership might not get its first production from the field until after 2010, depending on how many more test wells the companies drill.

Only a beginning?

"They may be the first ones to hit the jackpot, but if the current thinking is correct, this is only a beginning," Gheit said.

Many companies, including BP PLC, ExxonMobil Corp. and Anadarko Petroleum Corp., stand to benefit from their projects in the so-called lower tertiary, a rock formation that is 24 million to 65 million years old.

The proximity of the Gulf of Mexico to the world's largest oil-consuming nation makes it especially attractive. And it could put pressure on Florida and other states to relax limits they have placed on drilling in their offshore waters for environmental and tourism reasons.

"This could not have happened in a better place," Devon Chief Executive Officer Larry Nichols said in a conference call with analysts.

Chevron estimated that the 300-square-mile region where its test well was drilled could hold 3 billion to 15 billion barrels of oil and natural gas liquids. The United States consumes about 5.7 billion barrels of crude oil in a year.

The United States has reserves of more than 29 billion barrels of oil, according to the U.S. Energy Department. But the nation imports most of its oil from abroad, and its overall supply is tiny when compared with other producers such as Saudi Arabia, whose reserves exceed 250 billion barrels.

Chevron's well, Jack 2, was drilled about 5.3 miles below the surface, in the Walker Ridge area of the gulf, about 270 miles southwest of New Orleans and 175 miles off the coast of Louisiana. It followed up on a discovery made by Chevron in 2004.

Well sets records

Chevron said the well set a variety of records, including the deepest well successfully tested in the Gulf of Mexico. Chevron said the well was drilled more than 20,000 feet under the sea floor below 7,000 feet of water, for a total depth of 28,175 feet.

Chevron has a 50 percent stake in the field. Partners Statoil and Devon own 25 percent each.

During the test, the Jack 2 well sustained a flow of more than 6,000 barrels of oil a day. Analysts and executives think the yield could eventually be much larger than that.

Elizabeth Douglass writes for the Los Angeles Times. The Associated Press contributed to this article.

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