BP’s Tiber underscores difficulty of finding oil

Last week, BP announced a major oil discovery — Tiber — in the Gulf of Mexico.  This discovery strengthens BP’s leadership in the Gulf of Mexico where it already produces more than 400,000 barrels per day and operates two of the largest fields, Atlantis and Thunderhorse.  BP has exceeded its reserve replacement ratio by 100% for the past 15 years and Tiber will certainly help it continue the trend.

Another winner is the Gulf of Mexico.  Tiber strengthen’s the region, which produces a quarter of U.S. oil production and 15% of the nation’s natural gas output.  Lower tax rates and government take, political stability, easy access to talent, and improving technology have enabled the region to go from being perceived as a “dead sea” to the hotbed of exploration and production activity.

Pending appraisal, Tiber is anticipated to hold at least 3 billion barrels of oil.  Even if only 500 million are recoverable with existing technology, it is a big find given that new large oil fields have become increasingly infrequent and difficult.  For example, the annual worldwide growth in proven reserves was 34 billion barrels in the 1980s but fell to 19 billion barrels this decade.

That finding oil these days is increasingly difficult (and, therefore, expensive) is also reflected in this discovery.  Tiber was found by drilling a well six miles deep (likely the industry’s deepest) and is located in the Gulf’s lower tertiary where drilling a well costs about $200 million.