It may be one in every of the largest oil finds of the yr, if not the decade. In latest weeks, executives at BP’s exploration centers in Houston and London have been closely monitoring the progress of a really deep well that BP contractors had been drilling into the seabed of the western Gulf of Mexico. In late August the exploratory effectively, often called Tiber, was completed. On Sept. 2, BP introduced that it had made “a giant oil discovery.” BP’s chief of exploration, Michael Daly, terms the Tiber discover “very important” and says it is even “higher” than the Kaskida area, one other large BP property in the Gulf of Mexico, with an estimated 4 billion to six billion barrels of oil in place.
BP has struggled not too long ago, the result of extremely publicized battles with its Russian companions and a series of accidents within the U.S. at its Texas refinery and on Alaska’s North Slope. Now it is getting a huge shot in the arm from its gulf finds, which are just coming onstream with extremely worthwhile oil. Tiber offers additional confirmation of BP’s vanguard status amongst corporations probing the historic geological zones far under the seabed of the gulf in water a mile deep.
The London firm’s two-decade commitment to the gulf has helped resurrect a region that was being dismissed as “the Dead Sea” within the nineties, after companies hit a series of dry holes. “With respect to the Gulf of Mexico, BP has achieved very, very well,” says Richard Gordon, president of Gordon Power Solutions, an Overland Park (Kan.) oil and gas consultancy.
Tiber and Kaskida will take years to develop, and BP runs the chance of price overruns, one other crash in the worth of oil, and unforeseen, costly challenges in extracting all that crude. But BP’s star gulf property, a large oil and fuel area about 140 miles southeast of latest Orleans referred to as Thunder Horse, is already raking in money for the corporate (ExxonMobil owns 25 p.c of Thunder Horse). Visitors to the BP production platform for Thunder Horse must first board a helicopter at an airstrip at Houma in the Louisiana bayou. Dodging thunderstorms, the chopper flies over a seascape that reveals the history of the gulf oil trade, because the platforms evolve from shack-like buildings in shallow water to huge, deepwater drill ships farther out to sea. Lastly, a monstrous gray platform floating on 4 crimson legs comes into view. The size of a sports activities stadium, the Thunder Horse platform is tethered to the ocean bottom by big chains in 6,000 toes of water and is one in every of the biggest on the planet.
For Andy Inglis, BP’s exploration and manufacturing chief and Daly’s boss, Thunder Horse is the jewel in BP’s crown, worth all the snafus and delays the company had to beat before it may succeed on the leading edge of ultra-deepsea drilling. The company and its suppliers had to plot dozens of recent parts and supplies for the platform, similar to valves and coatings to withstand the searing temperatures and intense pressures on wells that should go through four miles of seabed. In 2005 a hurricane left the platform itemizing to 1 aspect, and in 2007 a mass of gear connecting up the wellheads on the sea flooring needed to be brought back to the surface to fix faulty welds.
‘Prepared to work on the frontierbr>Thunder Horse is ramping up to its 300,000-barrels-per-day target making it the No. 2 producer in the U.S. after Alaska’s Prudhoe Bay. Thunder Horse’s oil is among essentially the most profitable in BP’s portfolio. Fadel Gheit, an analyst at Oppenheimer in New York, figures that at a value of $60 per barrel, BP will earn pretax profits within the mid-$20s per barrel from Thunder Horse, maybe 4 occasions what it earns in high-tax Russia.
Two different huge deepwater Gulf of Mexico fields, BP’s Atlantis and Mad Dog, have additionally come onstream lately. BP is now the lead producer in the gulf, and initiatives reminiscent of Thunder Horse have added about 1.2 million barrels per day to total U.S. output, arresting a protracted decline in American manufacturing and decreasing dependence on imported power. The deepwater gulf is “one of many few shiny spots in world oil production,” says Bob MacKnight, an analyst at consultants PFC Energy in Washington. BP now reckons an additional 22 billion to forty billion barrels of reserves are to be discovered there.
Finds like Thunder Horse, Tiber, and Kaskida match BP’s excessive-threat, high-return strategy to a T. “We do not do simple issues,” Inglis says. “We are prepared to work at the frontier and handle the risks.” BP desires to do big initiatives of a billion barrels or more because that is the one option to change the massive volumes that it produces, and large scale interprets into high returns. Not like ExxonMobil and Royal Dutch Shell, which have substantial refining and advertising operations, BP is essentially an exploration and manufacturing company. BP wants to be a first mover and get the choice deals forward of everyone else. And BP stands out as a excessive roller among the majors. Witness TNK-BP, the corporate’s turbulent although lucrative joint venture with a bunch of Russian oligarchs who compelled the ouster of the enterprise’s expatriate CEO final yr. Then there’s BP’s lonely resolution just a few weeks ago to turn out to be the first large oil company to return to Iraq while ExxonMobil and Royal Dutch Shell balked on the Iraqis’ robust phrases.
The right dangers
BP’s strategy to discovering new oil and gasoline includes huge however calibrated gambles. Propylene Equipment Exploration wells within the deepwater Gulf of Mexico, for example, take months to drill and cost up to $200 million to deliver onstream. With an general exploration budget of $600 million to $1 billion per 12 months, BP goes to great lengths to ensure it is taking the best dangers. Four occasions a year, exploration boss Daly gathers his 15 or so chief lieutenants from all over the world, often in Houston or London, to resolve where to spend cash next. The aim is to back one of the best ideas not just spread exploration budgets evenly amongst the various groups. The workforce that proposes a drilling prospect units out in a number of pages what it expects to search out, together with the amount of oil and gasoline and the price of drilling. According to one participant, discussions can get fairly tense, “as a result of people are battling for projects they care about.” BP’s success price on the 15 to 25 exploration wells it drills per 12 months: about 60 p.c.
For the past eight years, BP has led its friends among the many majors in what’s often known as organic reserve substitute additions to its reserve base that do not embody any oil picked up via mergers. “Among the many majors, BP stands out,” says Irene Himona, the analyst at Exane BNP Paribas who wrote the study that ranks BP at the top. “It has created, by exploration, very large belongings, which go on producing for the following 20 to 30 years,” she provides.
Things weren’t at all times so upbeat. BP received its toes wet within the deepwater of the gulf more than 20 years ago. However, along with different firms, it hit a lifeless end in the early nineties, drilling a collection of costly dry holes attempting to replicate Shell Oil’s deepwater success there. David Rainey, a dry-mannered Northern Irishman who now heads BP’s gulf exploration team, recalls how different firms gave up, pondering the area was played out and too costly, while the former Soviet Union, which was just opening up, regarded more enticing than it turned out to be.
Cindy A. Yeilding, a bubbly Southern Methodist College graduate who bids for BP at U.S. authorities auctions of gulf oil acreage, recalls fearing that BP’s gulf group, too, would get the chop. However BP’s brain belief seemed on the pattern of discoveries in the deepwater and noticed they have been large and not trailing off in measurement, which is normally the case in a maturing area of production. The call: While the region was difficult, it still had a world-class future. And since it was below the control of the U.S., slightly than a growing-world dictator, the oil was more accessible.
BP administration informed its explorers to return to the drawing boards and come up with a brand new plan of attack. That they had been drilling spots that looked good on seismic surveys, the maps generated by bouncing sound waves off the rocks under the earth’s floor, however that approach had failed. Armed with new expertise that allowed them to drill a lot deeper, the explorers went back to fundamental petroleum geology: Their aim was to determine the place in the gulf massive amounts of oil, which is formed from the remnants of microorganisms that died thousands and thousands of years in the past, might have migrated up by the earth’s crust and then hit a seal of rock and salt. “You must learn to assume like an oil molecule,” Rainey says.
One BP explorer, Neil Piggott, even went 2,000 ft down in a submarine to get a firsthand look at oil and gasoline seeping out of the sea backside. There in the inky darkness he saw masses of bacteria feeding on the oil and 30-foot-long tube worms that in turn had been consuming the micro organism. The seeps were further proof that there was extra oil farther out within the gulf.
The explorers soon recognized Thunder Horse subject as a potential “elephant” business slang for a colossal discover but some at BP were skeptical. Would the rocks bearing the oil be so deep and topic to such excessive temperatures that they would not be porous sufficient to let oil move through? BP determined to drill an exploratory effectively. In April 1999, the effectively hit oil. Says Yeilding: “This opened up the potential of the whole Gulf of Mexico deepwater.”
To keep hitting dwelling runs within the gulf, BP needs to find extra difficult performs. Its explorers have been locking up positions in even more difficult areas west of Thunder Horse. In August, BP led the bidding on the biannual lease auctions held by the Minerals Administration Service of the Interior Dept. in New Orleans. BP bid about $50 million of the $145 million whole for about forty tracts within the western gulf.
BP’s explorers have also been leaders in coming to phrases with the historic salt layers, thousands of feet thick, that cover much of the oil and gasoline accumulations in the gulf and different deepwater areas. Oil corporations had shied away from the salt because it distorts seismic waves, obscuring what’s underneath. But BP’s explorers figured out how you can look below the salt with new strategies, corresponding to towing ribbons of seismic sensors behind boats over suspected fields to obtain sharper pictures of what lay under. “We stopped being afraid of the salt,” says Yeilding, who has spent time in France and Canada studying rock formations like those on the gulf’s backside.
Deepwater is now a favourite haunt of BP: It is a significant presence within the waters off Angola and is probing the Beaufort Sea within the Canadian Arctic. The company likes to use what it has learned in the gulf and Alaska to other zones. One play it’s beginning to scope out is the Gulf of Sirte off Libya, the place prospective oil and fuel deposits lie in the sands put down by historic river systems.
BP is once again enjoying the maverick in Libya. Outbid in open bid rounds, the corporate spent two years lobbying Muammar Qaddafi to grant BP a concession involving huge swaths of offshore and onshore acreage exceeding the size of Belgium. Daly says the next meeting of his explorers will give the green gentle to the first Libyan wells.
BP explorers know that irrespective of what number of Thunder Horse and Tiber winners they hit, that they had better not become smug. Two years in the past they drilled a prospect within the gulf that had them so excited they called it Massive Kahuna. Because it seems, that they had the geology unsuitable and located nothing. “We attempt to remain humble,” Rainey says.