Chevron Corp. and two partners said Tuesday that they had tapped a potentially huge new source of oil in the Gulf of Mexico's deep waters, fueling hope that further discoveries in the region could help ease the nation's oil supply woes.
The successful test of one of the deepest oil wells ever drilled showed such promise that some believe the undersea oil pool could rank as the largest discovery of crude since Alaska's Prudhoe Bay began producing nearly 40 years ago.
"An opportunity like this only comes once every few decades," said Daniel Yergin, chairman of Cambridge Energy Research Associates in Massachusetts. "It holds out the prospect that this means more supply, and more supply is good news for consumers."
The geologic formation being targeted by the Chevron group and others could begin producing oil steadily as early as 2012, and could yield 800,000 barrels of crude a day, or about 11% of total U.S. production, according to an August assessment of the region by Yergin's firm.
San Ramon, Calif.-based Chevron, whose partners include Devon Energy Corp. of Oklahoma and Norway's Statoil, wouldn't quantify the size of its find, except to note that the gulf's deep waters could hold 3 billion to 15 billion barrels of oil -- at the high end, a more than 50% boost to U.S. petroleum reserves.
After a year of mostly bad news about oil supplies, investors celebrated Tuesday by sending up stock prices -- including those of Chevron, Devon and Statoil -- and by further trimming the price of oil futures.
Motorists, however, should hang on to their hybrids.
Although the discovery suggests that the undersea region holds more oil than previously thought, experts say the crude will be expensive to extract and years in coming.
What's more, growing demand in the U.S. and elsewhere could quickly eat up the production gains. And there is the uncertainty that comes with trying to figure out how much oil lies so far beneath the surface.
"It's phenomenal, if it's there," said Matthew Simmons, who heads Simmons & Co., a Houston investment bank that specializes in energy. "But until you get a field on production, you don't really know what's there.... It's a roll of the dice."
Simmons said the gulf had yielded several highly touted oil finds over the years that fell short of expectations.
The Chevron project, dubbed Jack, is 270 miles southwest of New Orleans. It is one of a string of oil discoveries made beginning in 2002 in the Lower Tertiary formations off the coasts of Louisiana and Texas, miles below the seabed.
Oil companies have made more than a dozen discoveries in the ancient seabed, with names such as Great White, Tiger, Silvertip, St. Malo and Cascade. Last week, oil giant BP added its Kaskida project to the list.
Chevron's recent test well stands out, however, because it is the first among the group to take a stab at actual production. The company's well produced a steady flow of 6,000 barrels of high-quality crude per day, but the flow was intentionally limited to avoid exceeding the test facility's capabilities, Chevron spokesman Donald Campbell said.
The test "helps us understand that the oil can flow through the rocks and it can flow at a commercial rate," he said. "This is an example of how companies, investing in technology, are finding oil and gas today in places where we couldn't go 15 to 20 years ago."
Chevron's success could add urgency to other projects in the region, said Robert Esser, director of global oil and gas resources at the Cambridge research firm and author of two studies highlighting promising projects such as those in the gulf's deep waters.
It comes at a time of dwindling production for U.S. oil fields as well as a steep drop in output at Cantarell, the giant field belonging to Mexico, the second-largest U.S. petroleum supplier.
The U.S. burns through about 5.7 billion barrels of crude a year and has about 22 billion barrels in reserve. Saudi Arabia's reserves are believed to exceed 250 billion barrels.
"This is the most significant thing that's occurred in U.S. oil in years, in that it proves that this formation is capable of flowing in economic terms," Esser said.
Chevron's well extends through 7,000 feet of water and then 20,000 feet below the sea floor. From the rig to the bottom, the well measures 28,175 feet -- more than 5 miles -- a record depth for the Gulf of Mexico, Chevron said.
The company's first well for the 34,500-acre project was drilled in 2004, and confirmed the presence of oil. Chevron and its partners plan a third well next year to help determine the size of the reserves.
Chevron, the largest holder of leases in the deep-water gulf region, would not estimate the cost of the project and would not say when the group might give the final go-ahead for building the massive and costly production rig needed to extract the oil. If the partners decide to develop the field, production will follow in six or seven years, Chevron said.
U.S. stocks rose on the news, with the Dow Jones industrial average gaining 5.13 points, or 0.04%, to 11,469.28.
Chevron stock rose $1.51, or 2.3%, to $66.34.
In futures trading Tuesday, the October contract for U.S. benchmark light sweet crude -- the type discovered at the Chevron project -- fell 58 cents to $68.60 a barrel on the New York Mercantile Exchange. Oil prices have more than tripled since early 2002 but are down from their peak of $77.03 in July.
The news from Chevron gave additional ammunition to industry lobbyists and lawmakers who favor opening restricted areas of the U.S. coastline to drilling.
Rep. Joe L. Barton (R-Texas), a longtime backer of increased offshore drilling, hailed the announcement.
"The discovery of oil that isn't half a world away and that might increase our country's petroleum reserves by billions of barrels in one swoop will do wonders for assuring American drivers can get gasoline at a price they can afford to pay," Barton said in a statement.
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A newly tapped oil field beneath the Gulf of Mexico could hold 3 billion to 15 billion barrels of crude, enough to boost U.S. reserves by more than 50%. The vast deposit was discovered in the lower Tertiary layer of the seafloor, a rock formation 24 million to 65 million years old.
The U.S. is No. 11 in oil reserves with 21.9 billion barrels.
Oil reserves in 2005 (in billions of barrels)
Saudi Arabia: 259.4
United Arab Emirates: 97.8
United States: 21.9
Sources: Chevron, Devon Energy, Oil and Gas Journal, Minerals Management Service. Graphics reporting by Brady MacDonald, John Jackson