BP Makes Huge Oil Find

oil rig thunder horse BP

Good news, we still have large sources of oil in stable parts of the world.

BP (BP)  just made a huge discovery in The Gulf of Mexico, about 250 miles southeast of Houston, after drilling to a depth of 35,000 feet, a distance taller than Mount Everest.

BP didn’t say in the release how much oil it discovered exactly, but a “giant” discovery by the IEA’s definition has to hold 500,000 to 5 billion barrels of oil. Yesterday BusinessWeek reported BP’s chief of exploration, Michael Daly, said the find was better that its Kaskida field, also in the Gulf of Mexico, which has an estimated four to six billion barrels of oil.

The FT says that the Tiber field, as its known, might hold three billion barrels of oil with one billion recoverable with today’s technology.

It’s unlikely the well will be productive before 2014. As the FT points out, BP’s last major discovery in the Gulf took 9 years to start producing oil. When it comes online it should boost BP’s production from 400,000 barrels of oil equivalent per day to 650,000.

Analyst reactions are mixed, according to the FT’s Energy blog. Goldman Sach’s says:

We don’t have a size yet for the discovery, but we can assume c1 bn bls of recoverable reserves. This discovery will be very challenging to develop due to its complex geology (Lower tertiary) and water depth (almost 11 km) and is unlikely to be producing before 2014. We value these reserves at c$3/bl. BP owns a 62% stake (Petrobras 20%, ConocoPhillips 18%) and therefore this discovery could be worth c$1.9 bn net to them (1.1% of market cap). Good news for BP, but it is hardly transformational and does not provide a solution to their thin pipeline of new projects in the 2010-13 period.

UBS is more upbeat:

Any announcement of a discovery by a major means its important. Using the word ‘giant’ is almost unprecedented. From memory the last time something like this was announced it was Thunder Horse which is >1bn bbls. The previous discovery in the Lower Tertiary Kaskida was >3bn bbls in place and >300-500m bbls recoverable with significant upside. So this sounds like a 500m-1bn bbls discovery and with Kaskida the opening up of a whole new geological play. Company saying technologically ‘within the envelope’ and big advantages of critical mass. GoM oil discoveries are the highest value globally so this is a big positive – probably worth at least 3% even to a company the size of BP.

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