Striking oil in the Gulf

Sarah Gardner Sep 5, 2006

KAI RYSSDAL: The other big story of the day is oil. And 6,000 barrels of it a day doesn’t sound like much. On the face of it, it’s not. But when the crude’s coming from 28,000 feet beneath the surface, it’s a big deal.

Three oil companies announced today they’ve found what could be a huge new supply of oil and natural gas in the Gulf of Mexico. Chevron and Devon Energy, along with Norway’s Statoil, say they kept those 6,000 barrels a day flowing for a month straight. That’s enough to make them think the field’s commercially viable. If it is, it could boost U.S. reserves by 50 percent.

From the Marketplace Sustainability Desk, Sarah Gardner’s got the story.

SARAH GARDNER: These deepwater oil reserves lie about 200 miles southwest of New Orleans in a part of the Gulf of Mexico known as the lower tertiary. New technology has opened up the area for drilling and the results of this recent testing will pave the way for more exploration. Other nearby formations have yet to be tapped. Devon Energy’s Steve Hadden, however, believes four fields his company has found could be enormous:

STEVE HADDEN:“These are relatively large structures and on average we think these structures can typically have between 300 million to 500 million barrels or more in each structure.”

It’s possible, analysts say, all these newly discovered reservoirs could rival the output of Alaska’s Prudhoe Bay. Still, it’s too small to make a big dent in oil prices longterm. David Pursell is at Pickering Energy Partners in Houston:

DAVID PURSELL:“The good news is it’s additional oil for the United States. The bad news is, one, your gasoline prices aren’t going to go down in the near future. And, two, over the long term we’re still going to be importing a lot of oil from the Middle East.”

Deepwater oil exploration is expensive. But the U.S. government has helped foot the bill, and with oil at $60-$70 dollars a barrel, energy companies seem confident their prospects will pay off. Oil consultant David Goldwyn notes there are also economic advantages to drilling so close to home.

GOLDWYN:“Oil that comes from the Gulf of Mexico is obviously closer to U.S. refineries, and of course it doesn’t contain the political risk that exploration in other places has.”

Analysts say oil from these ultra-deep wells probably wouldn’t come online until 2010 at the earliest.

I’m Sarah Gardner for Marketplace.

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