New oil discovery in the Gulf: Big, yes, but not cheap

BP announces a "giant" oil field, deeper below the water than Mt. Everest is high. But don't write off peak oil yet

Topics: Peak Oil, Energy, How the World Works,

It’s not every day that an oil company announces the discovery of a “giant” new field, so energy geeks are paying a lot of attention to the news that BP, after drilling the world’s deepest exploratory well in the Gulf of Mexico, has tapped a bonanza. As much as 3 billion barrels of oil may be lurking at the so-called Tiber Prospect.

BusinessWeek is especially effusive, speculating that the discovery might be one of the biggest finds of the decade, and, by the time it is fully deployed the latter half of the next decade, will be “raking in cash” like its BP operated Gulf-neighbor, Thunder Horse.

I am having some trouble reconciling the figures, however. BusinessWeek cites Fadel Gheit, an analyst at Oppenheimer (OPY) in New York, as figuring “that at a price of $60 per barrel, BP will earn pretax profits in the mid-$20s per barrel from Thunder Horse.”

That suggests that the cost of finding, developing, and extracting oil from Thunder Horse is about $40 per barrel.



But according to the Energy Information Agency, the cost of finding oil in the Gulf of Mexico, as of 2007, had risen to $50 dollars a barrel. The EIA puts average U.S. “lifting costs” — actually getting the oil out of the ground — at about $10 dollars. One would presume that the lifting costs would be even higher in ultra deep wells of the Gulf of Mexico. The Tiber Prospect well goes down 35,000 feet !

Those figures suggest a break-even point of at least $60 dollars a barrel, and possibly more.

A giant find it may be, but cheap oil, it ain’t.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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