U.S. Oil Find Could Be the Biggest in 20 Years

Shell Oil Co. and its partner, British Petroleum, have announced the discovery of a major new oil field deep beneath the Gulf of Mexico, and new estimates of reserves there suggest that it is possibly the largest and most important U.S. oil find in more than 20 years.

Analysts say the so-called Mars prospect, located 3,100 feet below the surface and about 130 miles southeast of New Orleans, could be part of a string of undersea oil fields with as much as 2 billion barrels of oil.

If those estimates prove true, the area of the Gulf around the discovery, known as the Mississippi Canyon lease, would rival the North Sea in oil potential, analysts said Friday.

That means tens of millions of dollars per day in new revenues and significant slowing in the decline of U.S. oil production that has made the country more dependent on imports, analysts said.

“It’s a major find,” said Lysle Brinker, an analyst with the oil industry consulting firm of John S. Herold Inc. in Greenwich, Conn.

“It would be the most significant discovery since the North Slope” of Alaska in 1968, added Daniel Yergin, president of Cambridge Energy Research Associates and a leading authority on the oil industry.

Shell declines to say how much oil it believes rests deep in sands beneath the Gulf, except to acknowledge with characteristic understatement that the size of the field “could surpass” that of the company’s nearby 220-million-barrel Auger oil field.

But BP’s U.S. exploration subsidiary called the discovery “potentially the largest prospect in which the company has participated since the discovery of its major North Sea fields.”

The well-regarded industry newsletter Petroleum Intelligence Weekly will report on Monday that the Mars prospect could hold as much as 700 million barrels of oil, with another 700 million barrels in adjoining fields.

Other estimates say there could be as much as 2 billion barrels of oil in that area, enough to supply the United States’ total crude oil needs for 123 days at current consumption levels. If oil were produced at daily rates comparable to those in Alaska, such a reserve could last more than three years.

“This could turn out to be a major oil-producing province, where there could be several large- to medium-size fields,” said Sarah Miller, editor of the PIW.

The discovery challenges previous assumptions that there are no more big oil fields--so-called “elephants”--left in the Lower 48 states. The find could ease pressure on efforts to open up oil exploration in the remote and environmentally sensitive Arctic National Wildlife Refuge in Alaska, Miller added. The Gulf of Mexico is already one of the most heavily developed oil-producing areas in the world.

“It’ll boost the whole idea that we can still find oil here,” said John Lichtblau, president of the industry-funded Petroleum Industry Research Foundation in New York.

The discovery of oil in Mississippi Canyon also signals a new era of high-tech exploration and oil development in offshore areas heretofore considered off-limits because of the tremendous depth. Current oil fields in the Gulf are usually only a couple hundred feet beneath the surface.

But new technology makes deep-water drilling feasible, and Shell and BP have been among the pioneers in the area, analysts said. “Shell has really pushed the technology,” Yergin said. “This is really a pioneering effort to go at that depth.”

In the Auger field, Shell is drilling a production well in deeper water than any other in the world when it starts up in 1993, pulling oil from 2,860 feet beneath the surface. If the Mars prospect were to come on line tomorrow, it would hold the record.

“This will become the laboratory for developing other deep-water production techniques,” said Tom Petrie, a Denver-based oil analyst and chairman of Petrie Parkman & Co., oil industry investment specialists.

Not coincidentally, Shell is the largest leaseholder in the Gulf of Mexico, where water depths exceed 1,500 feet.

For now, Shell and BP are drilling further wells to determine exactly how much oil is in the Mars prospect, where exploration began in 1989, and whether to proceed with development. Four wells have already been drilled, and a fifth is in progress.

Shell says that it will spend one to two years deciding whether to develop the field. Oil production would not begin for five years after that, a company spokeswoman said. In the meantime, “something like this is extraordinarily capital intensive, with mind-boggling costs,” said energy economist Philip K. Verleger Jr. in Washington.

Shell paid $2.4 million for two leases in the Mississippi Canyon area where the Mars prospect is located. The companies will pay additional royalties to the federal government during production.

Development costs could run near $5 or more per barrel of reserves, compared to normal costs of $3 to $4 a barrel, Brinker said. On top of that, production costs could add another $5 a barrel, he said. Total development costs will easily amount to billions of dollars.

But analysts expect the field to generate profits for both oil companies when production gears up in 1997 or 1998. When production begins, Shell will own two-thirds of the output, and BP one-third.

If reserve estimates prove true, Mississippi Canyon would be only the second area in the Lower 48 states with more than 1 billion barrels of oil reserves left, Lichtblau said. The other is the old East Texas field, which was discovered in the 1930s.

In Alaska, the massive Prudhoe Bay remains the country’s largest single field, with about 3.5 billion barrels left out of 9.5 billion barrels when discovered.

Production of oil from the area could ease the decline of U.S. oil production, which has fallen steadily to the current 7.3 million barrels a day from nearly 9 million barrels a day in 1985. The United States now consumes about 16.2 million barrels of oil a day; the balance must be imported.