BP Strikes Oil, Enhances Exploration Potential in Gulf of Mexico

British Petroleum (BP) reports it has discovered a new oil reserve potentially reaching 3 billion barrels in the deepwater Tiber Prospect area in the Gulf of Mexico section known as Keathley Canyon block 102 (located 250 miles southeast of Houston, Texas). The oil reserve was struck at over 33,000 feet. The exact size and commercial value has not yet been determined but it will take several years to any begin production.

BP has an over 62% working interest in the Keathley Canyon block while Brazilian state-controlled Petrobras (PZE) owns 20% and U.S. oil gaint ConocoPhillips (COP) owns 18%. BP will need to extract the oil, typically recovering about 25% to 40% of the reserves in place.

At the low end BP estimates the Keathley Canyon find could represent 6% of its 12.56 billion barrels of proved reserves at the end of 2008. The company confirms it was its second major discovery in the emerging Lower Tertiary play in the Gulf of Mexico, where it currently produces over 400,000 barrels of oil equivalent a day.

The find enhances the potential in the Gulf of Mexico reviving interest in other exploration in the area, including at Royal Dutch Shell Plc's (RDS.A) Great White field.

BP shares jumped on the news to trade up 3.7%, and 1.45% on the DJ Stoxx European oil and gas sector index.

The Gulf of Mexico is of strategic value to Western oil majors as oil rich-countries such as Saudi Arabia, Venezuela and Russia reserve their richest fields to be developed by their state-owned oil companies.

The Gulf of Mexico is especially attractive because it offers high profit margins building on relatively low taxation compared to countries such as Russia and Nigeria, and because of the low political risk.

Disclosure: none

Comments

[Uncle Pie:]

Is it not remarkable that a huge oil discovery only 250 miles from Houston is made by BP, a British company, in partnership with Petrobras, a Brazilian company? Conoco, the only American company involved, has the smallest stake at 18%. This comes a couple of days after PetroChina announces a $1.8 Billion investment in a to-be-built project in the Canadian Oil Sands. Wake up, America!

Sep 03 02:27 PM

[Mmarrkk:]

Uncle: in case you don't know this, BP's office is located in Houston and it is staffed by over 75% Americans. So this is a very American operation. Once the platform is installed, it will be staffed by Americans. And, they pay taxes here in America.

Sep 03 03:13 PM

[buoy:]

....BP is also Amoco, one of the original Standard Oils.

Sep 04 08:53 AM

[Uncle Pie:]

Dear Mmarrkk,

I'm sure they have offices in Houston and employ lots of Americans. After all they are now the largest petroleum producer in the Gulf of Mexico! But BP stands for BRITISH Petroleum and when you buy their stock, you are buying an ADR (American Depositary Receipt). I imagine PetroChina will be opening offices in Calgary and employing lots of Canadians, too, but it will still be a Chinese company. My point being that the American companies appear to be asleep while others are developing major resources right in our backyard.


On Sep 03 03:13 PM Mmarrkk wrote:

> Uncle: in case you don't know this, BP's office is located in Houston
> and it is staffed by over 75% Americans. So this is a very American
> operation. Once the platform is installed, it will be staffed by
> Americans. And, they pay taxes here in America.

Sep 04 09:00 AM

[ajax2000:]

Uncle Pie: Buy ADRs of BP for your savings, and you benefit too. Oil is international, Exxon (with Shell) explores and produces in the North Sea. Chevron, Apache, Oxy, Anadarko also operate worldwide. It's only the State-owned cies, like Statoil, Petrobras etc. one should worry about. They only participate after the discoveries, and do not share the initial risks.

Sep 04 09:48 AM

[Uncle Pie:]

Thanks, Ajax 2000, I'd love to be a shareholder of BP (nice dividend) but I have concerns about their involvement in the former Soviet Union, especially after Shell's experience with their Sakhalin Island investment. I do own a number of oil company shares, in Canada, China, Brazil, Norway, Australia and France. I don't own any in the USA because oil production here peaked in 1970, whereas in Canada, for instance, it is not expected to peak until sometime around 2035. And because the American companies are usually not to be found at the forefront of exploration, as BP's recent discovery reminds us. However as an American citizen it is still dismaying to see our companies bought by, and our resources developed by, oil companies from across the sea. Capital is leaving the US, and, as the economist David Malpass remarked on CNBC the other day, when capital is leaving job growth will not occur. Witness today's jobs report, over 200,000 jobs lost in the US during August, while 27,000 new jobs were created in Canada.


On Sep 04 09:48 AM ajax2000 wrote:

> Uncle Pie: Buy ADRs of BP for your savings, and you benefit too.
> Oil is international, Exxon (with Shell) explores and produces in
> the North Sea. Chevron, Apache, Oxy, Anadarko also operate worldwide.
> It's only the State-owned cies, like Statoil, Petrobras etc. one
> should worry about. They only participate after the discoveries,
> and do not share the initial risks.

Sep 04 12:07 PM

[Mmarrkk:]

BP and Shell are both creating lots of jobs here in the U.S., are were until we hit this little speed bump known as a recession/depression. But no matter where their stocks are housed and their CEO is housed, both have huge presences in the u.s. and employ thousands here in the U.S. So, if jobs are important, they are employing large numbers. And the exporation work is done here in Houston.

Guess you are worried about Hyundai as well, even if they are building cars in Alabama? Should we change the name? Same employees, same local taxes, payrolls, etc.

Sep 04 02:30 PM

[Alan von Al...:]

On Sep 03 02:27 PM Uncle Pie wrote:
>Wake up, America!

BP didn't discover anything. It was Amoco and Transocean.

Sep 05 12:14 AM

[Steven Ward:]

As a former Amoco employee, a second generation employee at that, I still own some Amoco, oops BP that is, shares in a small investment savings account. Amoco had a problem, a serious lack of capital to really go elephant hunting. The fix was to sell to BP, where most of the Americans kept their jobs and then some.
Amoco at the time had the largest employee and former employee stock ownership in all of the large integrated oil companies, around 28 percent. It was the main reason we were not raided by T. Boone Pickens when he was raiding Phillips and others. He wasn't welcome and he knew it. Nobody sold their stock, darn near nobody. It was a religous cuilt the stock ownership. But we all knew from the CEO down to the truck drivers we had excessive refining capacity and no oil. BP came along and we all exchanged our shares. It was the right decision based solely on future shareholder value.
Uncle's right in the lack of capital investment by some US oil companies. But sometimes a good deal comes along and your survival depends on it.

Sep 05 11:34 AM