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BP’s ‘Giant’ Discovery Gives the Gulf of Mexico New Life

I am trying to climb out from under an avalanche of correspondence, and I also hope to have the “Niches” article done by Monday morning. Until then, the latest from Money Morning on BP’s new oil discovery. As I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story; these stories are meant to spur discussion.

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BP’s ‘Giant’ Discovery Gives the Gulf of Mexico New Life

By Jason Simpkins

Managing EditorMoney Morning

BP PLC (NYSE ADR: BP) yesterday (Wednesday) announced a “giant” oil discovery in the Gulf of Mexico that may contain more than 3 billion barrels of oil. The find is evidence of the Gulf’s resurrection as a major oil producer, as well as the great lengths – or depths – to which major oil companies must go to find vibrant wells.

The well, known as the Tiber Prospect, is one of the deepest wells ever drilled with a total depth of about 35,055 feet, or 6½ miles. An appraisal will be required to determine the size and potential commercial value of discovery, but preliminary estimates suggest the field is bigger than Kaskida, a 2006 discovery that boasted 3 billion barrels of oil equivalent (boe).

“Tiber represents BP’s second material discovery in the emerging Lower Tertiary play in the Gulf of Mexico, following our earlier Kaskida discovery,” said Andy Inglis, BP’s head of exploration and production. “These material discoveries together with our industry leading acreage position support the continuing growth of our deepwater Gulf of Mexico business into the second half of the next decade.”

BP is already the largest producer of oil and gas in the Gulf of Mexico, generating about 400,000 boe/day. But once they start producing, the Tiber and Kaskida wells could boost the company’s output in the region to 650,000 boe/day.

BP did not say when the Tiber well would begin producing oil, but analysts don’t expect the field to start pumping until at least 2014. That seems optimistic, however, as BP’s last large-scale development in the Gulf – the Thunder Horse field – took nearly twice as long. That well was discovered in 1999 but didn’t start producing until just last year.

Of course, the Thunder Horse platform offers a compelling case study for the revival of oil exploration and development in the Gulf of Mexico – once referred to as the “Dead Sea” by oil majors who believed the region was tapped out.

Thunder Horse is ramping up its production to 300,000 barrels per day (bpd), which makes it the No. 2 U.S. producer behind Alaska’s Prudhoe Bay, BusinessWeek reported.

In fact, Thunder Horse and projects like it have added about 1.2 million bpd to total U.S. output. U.S. crude oil production is expected to rise this year for the first time in nearly two decades. In the first seven months, the country has averaged 5.26 million bpd, the highest for the January-to-July period in four years, according to the American Petroleum Institute, an industry group.

The deep waters of the Gulf of Mexico are now “one of the few bright spots in global oil production” Bob MacKnight, an analyst at PFC Energy told BusinessWeek.

The Gulf now accounts for about 25% of domestic oil production and 15% of natural gas output through about 3,800 offshore production platforms, according to the U.S. Minerals Management Service.

Of course, that production has come at a high cost. Exploration wells cost up to $200 million to bring onstream, and actual offshore platforms are even more expensive. Thunder Horse cost more than $1 billion to build and another $250 million more to repair after Hurricane Dennis knocked the massive structure on its side.

Still, operating in U.S. waters in the Gulf of Mexico is easier and less costly taking on projects in countries such as Venezuela, Africa, Iraq, and Russia where political skirmishes and civil unrest often lead to costly setbacks.

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Money Morning Editor’s Note

Why Is Beijing Investing $200 Billion in One Company? The answer is simple. This rail company hauls 25% of the world’s freight – but it only has 6% of the world’s track. Right now, freight supply is 65% shy of demand. Sales for this company have grown on average 47% over the last five year. And now, with a $200 billion infusion, it’s about to jump even higher. Estimates show the potential gains at 356%. Click here for the full report.

September 5, 2009 Posted by | BP, Gulf of Mexico, Money Morning, oil discoveries | 14 Comments

Our Ironic Energy Policy

Energy policies in the U.S. often seek to punish our domestic oil and gas producers, while at the same time we work hard with foreign producers to ensure that the oil continues to flow. I noted in a recent essay:

It is ironic that Steven Chu doesn’t seem to feel the need to work with our domestic oil industry, but warns OPEC not to cut production, and then is pleased when they don’t. I believe the blind spot in the present administration over the need to support our domestic producers will simply mean that future energy secretaries are even more beholden to OPEC.

Now, over the weekend we have two bits of news that continue to show the irony of our energy policies:

Clinton on oil mission to Angola

LUANDA (AFP) – US Secretary of State Hillary Clinton shifted the focus of her Africa trip to business on Sunday, arriving in Angola to boost relations with the continent’s key oil producer.

The top US diplomat is on a one-day visit to the southern African nation, which vies with Nigeria as Africa’s biggest oil producer but where two-thirds of the population lives on less than two dollars a day.

Angola is now China’s largest supplier of crude oil, but it is also a key provider to the United States. Angola sold 19 billion dollars in exports to the US market last year, 90 percent of it oil.

I certainly understand the need to work with other countries to keep the supply chain open, but those policies don’t seem to extend to our own country. How about sending Clinton or Chu on a mission to ExxonMobil to figure out how to better work with domestic producers?

Then, we have the following two stories:

Other countries ink deals for oil drilling off the Florida Keys

While the debate about drilling off the coast of Florida continues in Washington and the state Legislature, several international companies are getting started on projects that could bring oil rigs within 60 miles of the Keys by year’s end.

Companies from nations like Norway, Spain, India, China, Russia and Brazil have signed exploration agreements with Cuba and the Bahamas that could mean drilling south of Key West this year, and 120 miles east of the Keys in the Cay Sal area of the Bahamas in fewer than two years.

“Wouldn’t it be ironic if the Russians could drill closer to our shores than American oil and gas companies? The losers would be the American consumers who are cut off from the trillions of dollars in government revenue and thousands of new jobs that could be created if more of America’s oil and natural gas resources could be developed,” Katie Matusic, media relations manager for the oil industry lobbying group American Petroleum Institute, wrote in an e-mail.

Russian oil rigs just 45 miles from Florida?

New York – Remember the Cuba Missile Crisis and the threat of Russian nukes 90 miles from Key West? Now, there is the possibility of Russian oil rigs even closer, drilling in Cuban waters off the Gulf of Mexico.

Last week, the Cuban government announced it had signed contracts with Russia, allowing Russia to hunt for oil and natural gas in the Gulf of Mexico, perhaps as close as 45 miles from US shores.

The US oil and gas industry is hoping the Cuban drilling causes the US to rethink its own policy in drilling in the eastern gulf of Mexico, an area the USGS estimates has 3.06 billion barrels of oil and over 11 trillion cubic feet of natural gas.

Last July former president Bush lifted the executive moratorium on drilling on the Outer Continental Shelf. The Congress, which usually renewed the moratorium each year, let it expire.

But, in February, Interior Secretary Ken Salazar, announced he was extending until Sept. 21 the period for public comment on a proposed five-year plan for drilling offshore.

Proponents of drilling maintain it would provide the Obama administration with a dramatic influx of $2.2 trillion in new revenue from royalties and taxes on profits. They estimate it would add 1 million new jobs as companies build new oil rigs and roughnecks get hired in Florida for the new rigs.

If you think we need to reduce our dependence on fossil fuels – and I do – then that’s one thing. Adopt policies that encourage this. But don’t adopt schizophrenic policies that result in us treating foreign producers better than we do our own domestic industry. The result could be that we will end up buying oil produced in the Gulf of Mexico from Russia, creating jobs for them and advancing their economy – at the expense of our own. And that is simply asinine.

August 9, 2009 Posted by | energy policy, Florida, Gulf of Mexico, oil companies, oil production, politics | 11 Comments

$100 Oil This Week

It hasn’t gotten all that much media coverage yet, but it is looking more and more like Mexico has taken a Katrina-sized hit that has devastated Tabasco. I had to go to The Irish Times for this:

Government offers aid to Mexico

A week of heavy rains over Mexico caused rivers to overflow, drowning at least 80 per cent of the swampy, oil-rich state of Tabasco. Much of the state capital, Villahermosa, looked like New Orleans after Hurricane Katrina, with murky water reaching to second-storey rooftops and desperate people waiting to be rescued.

There has been some mainstream media coverage, but so far the MSM is largely asleep at the wheel. Another story that emphasizes how this disaster has impacted Mexico’s oil industry:

Mexican President Calderon: Floods Cripple Mexico’s Oil Industry

Villahermosa, Mexico (AHN) – Mexican President Felipe Calderon on Friday warned it would take time to rebuild what has been devastated by the non-stop flooding plaguing the country, including the oil industry, which was crippled by the catastrophe.

“The storms have forced the closure of three of Mexico’s main oil ports, preventing almost all exports and halting a fifth of the country’s oil production. It has a strong economic impact” Calderon said in an interview.

The storm did not spare the Bay of Campeche, Mexico’s main oil producing region and home to more than 100 oil platforms. Overall, the region normally exports about 1.7 million barrels of crude daily. Since, most of the production remains shut down, it would mean that Mexico’s output would drop by 2.6 million barrels a day.

Some 800,000 families were displaced as floods submerged Villahermosa, the capital of Tabasco. More than 300,000 people were also trapped in their homes and rescue operations are still underway.

One hundred percent of the crops were destroyed, on top of the multi million worth of properties and belongings of people that were swept away by floods.
“It’s not just the worst natural catastrophe in the state’s history but, I would venture to say, one of the worst in the country’s recent history,” the President said.

Devastating. Where is the press coverage? 100 percent of crops destroyed? It’s a minor issue in comparison to the human tragedy, but this will probably be the catalyst to push oil on past $100 this week. I estimate the probability of that happening now at 85%.

November 5, 2007 Posted by | Gulf of Mexico, Hurricane Katrina, Mexico, oil prices, oil production | 2 Comments

Tragedy in the Gulf

In case you haven’t heard, at least 18 people tragically lost their lives in an accident in the Gulf of Mexico:

Gulf of Mexico accident kills 18

(CNN) — At least 18 oil workers were killed and seven more were missing after a portable drilling rig crashed into an oil platform during stormy seas in the Gulf of Mexico, the country’s state-owned oil company said Wednesday.

According to a statement from Petroleos Mexicanos, or Pemex, 61 workers were rescued from the Gulf after Tuesday’s accident, which also created a gas and oil leak at the site that was not expected to be capped for three to five days.

The drill rig was knocked into the platform during a storm in the southwestern Gulf of Mexico, with 80 mph (130 km/h) winds and waves reaching 26 feet (8 meters).

The rig had been set up next to the oil platform to begin drilling a new well, when the wind and waves pushed it into the platform.

Just a reminder of the constant dangers faced by offshore workers. My thoughts are with the families.

October 25, 2007 Posted by | accident, Gulf of Mexico, oil rigs | Comments Off on Tragedy in the Gulf

Tragedy in the Gulf

In case you haven’t heard, at least 18 people tragically lost their lives in an accident in the Gulf of Mexico:

Gulf of Mexico accident kills 18

(CNN) — At least 18 oil workers were killed and seven more were missing after a portable drilling rig crashed into an oil platform during stormy seas in the Gulf of Mexico, the country’s state-owned oil company said Wednesday.

According to a statement from Petroleos Mexicanos, or Pemex, 61 workers were rescued from the Gulf after Tuesday’s accident, which also created a gas and oil leak at the site that was not expected to be capped for three to five days.

The drill rig was knocked into the platform during a storm in the southwestern Gulf of Mexico, with 80 mph (130 km/h) winds and waves reaching 26 feet (8 meters).

The rig had been set up next to the oil platform to begin drilling a new well, when the wind and waves pushed it into the platform.

Just a reminder of the constant dangers faced by offshore workers. My thoughts are with the families.

October 25, 2007 Posted by | accident, Gulf of Mexico, oil rigs | Comments Off on Tragedy in the Gulf