WASHINGTON—Chevron Corp.'s announcement Tuesday that it successfully extracted oil from a deposit more than five miles below the surface of the Gulf of Mexico is a discovery that could boost U.S. oil reserves by 50 percent and ease fears that the world is running out of oil.
Experts predict that Chevron's successful test drill of its Walker Ridge Block some 5.3 miles below the deep Gulf waters may lead to 750,000 barrels of new daily U.S. crude oil production within six years. That's equal to about 15 percent of last week's U.S. oil production of 5.03 million barrels per day—welcome news amid today's high oil prices caused by a world growing thirstier for oil.
"This play has been unfolding in the ultra-deep waters of the Gulf of Mexico for five years, and this is the breakthrough announcement," said Daniel Yergin, author of "The Prize," an award-winning history of oil production. "This discovery is at the frontier for world oil. You won't see the impact of this at the gas pump tomorrow, but you could in five or six years."
Despite today's tight oil markets and high prices, Yergin, who heads the oil consultancy Cambridge Energy Research Associates, maintains that oil should again be plentiful somewhere between 2010 and 2015, thanks in large measure to new technology that permits recovery from previously inaccessible reserves.
Successful deepwater oil finds in the Gulf of Mexico are sure to boost similar efforts off the shores of Africa and Brazil, challenging the popular view that the world may be running out of oil.
"This is the next step forward in proving out the concept that maybe there is more oil in the world than we think, but it is just harder to get to," said Tore Alden, an oil analyst in Detroit for the international bank ABN AMRO.
Chevron and partners Devon Energy Corp. and Statoil ASA announced Tuesday that their Jack #2 test well maintained a flow rate of 6,000 barrels of crude oil a day during a production test this year and that an additional appraisal well will be drilled in 2007.
Chevron's Walker Ridge Block, located about 270 miles southwest of New Orleans and 175 miles offshore, is but one of several fields being explored below the Gulf's floor.
Taken together, these fields spread across a nearly 300-mile stretch of ocean bottom. They could result in production that rivals Alaska's giant Prudhoe Bay oilfield, which tops U.S. oil production. Tuesday's announcement could prove the most important U.S. find since the 1968 Prudhoe Bay discovery.
"If they can get this well to production, and it is within the range of estimates as far as production, it will be a significant find. It will have an impact on the world's oil supply and demand balance," said Alden, the ABN AMRO analyst. "The big question is how much oil is actually down there. The estimate for that is very wide, 3 billion barrels to 15 billion."
Chevron and its partners believe those numbers are conservative.
Analysts expect that if oil prices remain high, costly deepwater exploration will expand.
"All sorts of things become economical with oil at $70 (a barrel) . . . $70 is a very forgiving number for oil exploration," said oil consultant Peter Beutel. "You can drill a lot of dry holes and get one to pay."
Yergin's partner, Robert Esser, says that deepwater oil is economically recoverable with oil prices as low as $35 to $40 per barrel. Oil closed at $68.67 per barrel Tuesday on the New York Mercantile Exchange, down about $10 from its peak last month during Israel's war in Lebanon.
It'll take deep pockets to develop deepwater projects. Chevron's Tahiti project, another deepwater Gulf site that will begin producing in 2008, carries a $3.5 billion price tag and will produce an estimated 125,000 barrels per day. Its Blind Faith project will cost $1 billion and yield an estimated 30,000 barrels per day. Chevron is building two deep-drilling ships that'll be capable of drilling 7.6 miles below the ocean's surface.
Tuesday's announcement also potentially shakes up the geopolitics of oil. The two-year run-up in crude oil prices has led many nations to either nationalize their oil sectors or sharply rewrite the terms under which private oil companies like Chevron can drill and produce on their territory or in their waters.
U.S. deepwater leases would help reduce U.S. dependency on unreliable suppliers of foreign oil, such as those in the unstable Middle East. Since oil prices are based on global supply and demand, greater U.S. output will help lower the global price of oil.
"That's why we've been advocating to improve access to resources to be developed here at home," said Donald Campbell, a Chevron spokesman in San Ramon, Calif.
Chevron's Tuesday announcement comes as House of Representatives and Senate negotiators square off this month on competing versions of legislation that would expand offshore drilling along the U.S. Outer Continental Shelf, an area closer to shore than the deepwater breakthroughs.
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(c) 2006, McClatchy-Tribune Information Services.
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