It may be one of the biggest oil finds of the year, if not the decade. In recent weeks, executives at BP (BP)'s exploration centers in Houston and London have been closely tracking the progress of a very deep well that BP contractors were drilling into the seabed of the western Gulf of Mexico. In late August the exploratory well, known as Tiber, was completed. On Sept. 2, BP announced that it had made a "giant oil discovery" in the gulf. BP's chief of exploration, Michael Daly, terms the Tiber find "very significant" and says it is even "better" than the Kaskida field, another huge BP property in the Gulf of Mexico, with an estimated 4 billion to 6 billion barrels of oil in place.
BP has struggled recently, the result of highly publicized battles with its Russian partners and a series of accidents in the U.S. at its Texas refinery and on Alaska's North Slope. Now it is getting a shot in the arm from its gulf finds, which are just coming onstream with highly profitable oil. The London company's two-decade commitment to the gulf has also helped resurrect a region that was being dismissed as "the Dead Sea" in the early 1990s, after companies hit a series of dry holes. "With respect to the Gulf of Mexico, BP has done very, very well," says Richard Gordon, president of Gordon Energy Solutions, an Overland Park (Kan.) oil and gas consultancy.
Tiber and Kaskida will take years to develop, and BP runs the risk of cost overruns, another crash in the price of oil, and unforeseen, expensive challenges in extracting all that crude. But when a field produces, the payoff can last for years. BP's star gulf property, a massive oil and gas field about 140 miles southeast of New Orleans called Thunder Horse, is already raking in cash for the company and for its minority partner in the project, ExxonMobil.
Visitors to the BP production platform must first board a helicopter at an airstrip at Houma in the Louisiana bayou. Dodging thunderstorms, the chopper flies over a seascape that reveals the history of the gulf oil industry, as the platforms evolve from shack-like structures in shallow water to massive, deepwater drill ships farther out to sea. Finally, a monstrous gray platform floating on four red legs comes into view. The size of a sports stadium, the Thunder Horse platform is tethered to the ocean bottom by huge chains in 6,000 feet of water and is one of the biggest in the world.
For Andy Inglis (pronounced Ingalls), BP's exploration and production chief and Daly's boss, Thunder Horse is worth all the snafus and delays the company had to overcome before it could coax oil from the seabed far below. The company and its suppliers had to devise dozens of new components and materials for the platform, such as valves and coatings to withstand the searing temperatures and intense pressures on wells that must go through four miles of seabed. In 2005 a hurricane left the platform listing to one side, and in 2007 a mass of equipment connecting up the wellheads on the sea floor had to be brought back to the surface to fix faulty welds.
Now, the property is finally ramping up to its 300,000-barrels-per-day target—making it the No. 2 producer in the U.S. after Alaska's Prudhoe Bay. The oil from this gulf field is among the most profitable in BP's portfolio. Fadel Gheit, an analyst at Oppenheimer (OPY) in New York, figures that at a price of $60 per barrel, BP will earn pretax profits in the mid-$20s per barrel from Thunder Horse, perhaps four times what it earns in high-tax Russia.
http://online.wsj.com/article/SB125193142246381215.html
By ANGEL GONZALEZHOUSTON -- After being the theater of major setbacks for BP PLC, the U.S. Gulf of Mexico is becoming the main stage for the oil giant's return to grace.
A giant deepwater oil discovery in the Tiber field disclosed Wednesday is likely to increase the London-based oil company's footprint in the region, a mature province that's proving its resilience in the face of offshore frontiers in Brazil and Angola, which have lately dominated the spotlight. About 8% of the oil and gas BP produces comes from the U.S. Gulf.
The announcement shows that "BP is executing quite well" its program to further exploit the Gulf's riches, said Pavel Molchanov, an analyst with Raymond James.
BP is the biggest producer in the Gulf, to the tune of 400,000 barrels of crude oil and natural gas a day. There, the company runs the second-largest field in the U.S., Thunder Horse. BP also operates the largest U.S. oilfield, Alaska's Prudhoe Bay.
The Tiber discovery, which could hold more than 3 billion barrels of oil equivalent, follows another massive nearby find in the Kaskida field in 2006. If both are developed, they could boost BP's output in the Gulf to around 650,000 barrels of oil equivalent day during the next 15 years, said BP spokesman Robert Wine. Globally, BP produced about 4.1 million barrels a day in the second quarter.
In 2010, about 14% of crude oil production in the lower 48 American states will come from four deepwater Gulf of Mexico oil fields - two of which, Atlantis and Thunder Horse, are operated by BP, says the U.S. Energy Information Administration.
For BP, these discoveries will boost the relative importance of its North American portfolio, which already represents about 40% of BP's global business.
BP was not always so triumphant in these waters. The company took a hit to its reputation and bottom line earlier in the decade following a cascade of events in the U.S. The producing platform for the Thunder Horse field was delayed by three years before starting in 2008. Atlantis was also postponed. A 2005 explosion at BP's Texas City refinery killed 15 workers, and the company agreed to plead guilty to criminal environmental charges related to the blast. U.S. regulators in 2006 sued BP for manipulating the propane market. Later that year, BP was forced to shut down a bulk of the oil output at Prudhoe Bay following the discovery of corrosion in some pipelines.
Shortly thereafter, Royal Dutch Shell PLC eclipsed BP as the world's second-largest energy company in terms of market capitalization after Exxon Mobil Corp.
"All of the things that happened to BP in North America...all of that's behind them," said Raymond James' Molchanov.
BP underwent a management shakeup in 2007 and, in January, appointed Lamar McKay as the new president for BP America. McKay played a key role during the company's difficult negotiations with its partners over the strategic direction of a joint venture in Russia. It was believed that BP, at one point, wanted to expand its presence in Russia, but those hopes were dashed after the Kremlin moved to strengthen its grip over the country's massive resources by reducing the access it gives to foreign oil companies.
BP shares in the U.S. closed 4.1% higher at $52.53, outperforming its peers.
Welcoming Waters
BP's latest discovery, one of the deepest oil fields ever drilled, highlights how the Gulf of Mexico can hold its own as an exploration province despite its relative maturity: It saw its first well out of sight of land in 1947. "It's still got a lot of life left in it," said Leta Smith, a consultant with IHS CERA in Houston, referring to the U.S. Gulf. Bob Fryklund, a consultant with IHS, said that the Gulf, thanks to deeper areas made exploitable by new technology, is part of the offshore "Golden Triangle," that also comprises West Africa and Brazil.
Brazilian offshore finds are the largest - Petroleo Brasileiro's Tupi field is estimated to contain some 8 billion barrels of oil equivalent - while many Gulf discoveries range in the 1 billion to 2 billion of oil equivalent ballpark, said Fryklund. Kaskida and Tiber, BP's two discoveries in the Gulf's newest geologic play - the so-called lower tertiary - are on the larger side of what is found in the Gulf. BP is the largest acreage holder in the lower tertiary.
Brazil's attractiveness could be somewhat dimmed by a major shift in oil policy. On Monday, Brazil's government followed the lead of other resource-rich countries such as Russia and Venezuela by proposing new laws that put the state-owned oil company in the driver's seat of development of newly discovered reserves, leaving international oil companies a secondary role.
The U.S. Gulf remains one of the last places in the world where international oil companies can count on relatively stable regulation.
"In general, the industry views the Gulf of Mexico as a durable fiscal regime," said Matthew Snyder, a consultant with Scottish energy consultancy Wood Mackenzie.
—James Herron contributed to this report.
