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Oil discovered in deep gulf waters

A deposit southwest of New Orleans could hold up to 15-billion barrels of oil and natural gas liquids, Chevron says. It could affect the debate over Florida offshore drilling.

By TIMES STAFF and TIMES WIRES
Published September 6, 2006

WASHINGTON - A trio of oil companies led by Chevron Corp. has tapped a pool deep beneath the Gulf of Mexico that could boost the nation's reserves by more than 50 percent.

A test well indicates that the find - located in the Walker Ridge area of the Gulf, about 270 miles southwest of New Orleans and 175 miles off the coast - could be the biggest new domestic oil discovery since Alaska's Prudhoe Bay a generation ago.

But the vast oil deposit roughly 4 miles beneath the ocean floor won't significantly reduce the country's dependence on foreign oil, and it won't help lower prices at the pump any time soon, analysts said. "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."

Chevron on Tuesday estimated the 300-square-mile region where its test well sits could hold between 3-billion and 15-billion barrels of oil and natural gas liquids. The United States consumes roughly 5.7-billion barrels of crude oil in a year.

Chevron's discovery could influence the debate over offshore drilling in Florida, which pits environmentalists and the tourism industry against oil companies and advocates of greater American oil autonomy. The U.S. Senate and House both passed bills this year that would relax offshore drilling restrictions in the state, and the two chambers are expected to reconcile their versions before 2006 is out.

Dave Mica, executive director of the Florida Petroleum Council, said that Chevron's find shows that a great deal of oil remains to be found, and that companies equipped with increasingly sophisticated diagnostic tools and deep-drill capabilities will discover it. "The naysayers about new finds in that area were wrong," he said. "We have to search for oil where it is, not where we want it to be."

Dan McLaughlin, a spokesman for Sen. Bill Nelson, D-Fla., who has fought to keep drilling off Florida's shores, called such arguments false. "America has 3 percent of the world's reserves, and it can't ever drill enough oil to affect the price on the global market," McLaughlin said. He said alternative fuels are a better way to achieve energy independence.

Marnie Funk, spokeswoman for the Senate Committee on Energy and Natural Resources, said the Chevron find argues for more domestic oil exploration but is unlikely to change the dynamics of the debate on Capitol Hill. "We in the Senate are very comfortable with our bill," she said.

Brian Kennedy, a spokesman for House Resources Committee Chairman Richard Pombo, R-Calif., who ushered through the House bill, agreed. "It does serve as an example of what American ingenuity can produce if Congress finally makes it legal for our producers to go out and look and see what we have," he said.

It will take many years and tens of billions of dollars to bring the newly tapped oil to market. But the discovery carries particular importance for the industry at a time when Western oil and gas companies are finding fewer opportunities in politically unstable parts of the world, including the Middle East, Africa and Russia.

The country's reserves currently are the equivalent of more than 29-billion barrels of oil, according to the U.S. Energy Department. But the United States imports most of its oil and its overall supply is tiny when compared to, say, Saudi Arabia, whose reserves exceed 250-billion barrels.

Chevron's well, called "Jack 2," was drilled about 5.3 miles below sea level. Chevron has a 50 percent stake in the field, while partners Statoil ASA of Norway and Devon Energy Corp. of Oklahoma City own 25 percent each.

During the test, the Jack 2 well sustained a flow rate of more than 6,000 barrels of oil per day, but analysts and executives think the payoff could be much larger than that.

Oppenheimer & Co. analyst Fadel Gheit estimated that the first production for the Chevron-led partnership might not come on line until after 2010, depending on how many more test wells the companies drill. That said, many companies, including BP PLC, Exxon Mobil Corp. and Anadarko Petroleum Corp., stand to benefit from their own projects in the so-called lower tertiary, a rock formation that is 24-million to 65-million years old.

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

Shares of Devon rose $7.73, or 12.1 percent, to $71.88 in afternoon trading on the New York Stock Exchange, above the top end of the stock's 52-week range of $48.94 to $70.35. Shares of Chevron rose $1.76, or 2.7 percent, to $66.59.

Times staff writers Scott Barancik and Wes Allison contributed to this report, which also used information from the Associated Press.

[Last modified September 6, 2006, 00:53:29]