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Yup........Imagine that!!.........And The Lefties have been saying
"we're running out of Oil".........Of course, The American Petroleum
Institute has known for YEARS that there is LOTS of UNTAPPED Oil in the
Gulf Of Mexico..........The World is FULL of
"WASHINGTON (Sept. 5) - A trio of oil companies led by Chevron Corp.
has tapped a petroleum pool deep beneath the Gulf of Mexico that could
boost the nation's reserves by more than 50 percent. A test well
indicates it could be the biggest new domestic oil discovery since
Alaska's Prudhoe Bay a generation ago."
Published on 6 Sep 2006 by Energy Bulletin. Archived on 6 Sep 2006.
Clarification of the Huge Chevron Gulf Oil Discovery
by Randy Kirk
The September 5th announcement by Chevron and Devon and Statoil of the
huge Gulf of Mexico discovery should be clarified. The announcement
claims that the discovery could increase US proven reserves of oil by
as much as 50%. However, the total amounts are highly speculative.
Additionally, the discovery likely won't impact oil markets but could
potentially impact natural gas markets since the discovery is probably
mainly natural gas. The area will not come online for at least 4 years
and, at a full rate, for at least 7 years. Further, it is likely that
there are political motivations behind the announcement, as the vote to
open offshore drilling in the United States is upcoming in the US
1. The range of amount -- from 3 billion to 15 billion (in itself a
huge range -- reserves of Exxon Mobile are around 14 billion barrels
total) is comprised of no single field of more than 300 million
barrels. An entire area of as much as 15 billion barrels with no
"giant" over 1 Bn bar oil field is unusual. Oil discoveries tend to
cluster with a giant (King) and several queens and even more jacks.
2. The area is very deep: 7000 feet of seawater and a further 20,000
feet below the ground. That is about 3 miles below the surface, in 1+
miles of deep water. The normal time to accurately estimate oil and gas
field size is months. These fields are more challenging because of the
extreme depths. It is therefore likely that very little is known with
certainty about the potential reserves from a geological standpoint.
3. Production will not start, at the very earliest, at 2010. Full
production, will not start at the very earliest 2013. Many projects are
being delayed so these dates are most likely the best possible
4. The wells are located in deep water and will not be served by
underground GOM pipelines. The oil will be pumped directly to tankers.
Pipelines are faster and more efficient, and tankers will put a higher
price and limited the amount of oil pumped out.
5. The wells are most likely mainly natural gas, as they are very deep.
All estimates are in barrels of oil equivalent. Oil tends to form
closer to the surface, gas deeper. Therefore the discovery is likely to
impact natural gas markets, not oil, if the gas exists in meaningful
6. The US Senate is weeks away from voting on the lifting of the
25-year ban on offshore drilling off the majority of the coasts in the
US. This offshore drilling bill was approved in the Congress but
political analysts believe the bill will face more opposition in the
Senate. The oil industry stands to make high profits if Congress will
open up Florida and the Offshore East coast to drilling. To date the
offshore drilling bill has not been approved by both houses because of
environmental interests. A large potential oil "discovery" in the
Gulf would provide evidence that the passing of the offshore oil bill
would be beneficial.
7. Related to point #6, the announcement is reminiscent of the Mexican
"huge oil discovery" announced last year, of a possible 10 billion
barrels, which was quietly revised this year to around 43 million
barrels, a downward revision of 99.57%. This similar "discovery" was
made in Mexico last year a few months before the Mexican parliament was
to vote on Pemex (state oil co)'s budget and rights to expand drilling.
This illustrates the potential political pressure to announce oil and
8. The wells are estimated to cost between $80M to $120M each, starting
in 2010, and a completion time of 60 days. Payback period with gas at
$7 is about 3 to 5 years (by my rough calculations). Although it is
likely that some new technical issues will be likely be needed to be
resolved as the depth is approaching record levels. Further, insurance
rates at these depths in the Gulf will likely be very high - the
rough payback period here doesn't include insurance costs.
~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~
Randy Kirk is a senior financial analyst at an investment management
firm in San Francisco, California.