BP's Tiber oil discovery is its second major oil discovery in the Lower Tertiary formation in the ultra-deep waters of the US Gulf of Mexico, suggesting greater understanding of the Lower Tertiary's oil potential. BP said its discovery may hold 3 billion barrels of oil and gas, but we caution that technical challenges of ultra-deep offshore wells could make only a fraction of the estimated oil in place retrievable (estimates range from 5% to 25%). With just one well's worth of data, we recognise how early reservoir estimates could be adjusted during the appraisal phase and will hold off from changing our model assumptions for BP.
What's encouraging is that the Tiber well follows BP's Kashida discovery at similar depths in 2006 and marks the 18th Lower Tertiary-aged discovery since Chevron's Jack discovery in 2006. BP's Tiber well is located in the Keathley Canyon block about 250 miles southeast of Houston and was drilled down to a total depth of 35,055 feet including 4,132 feet of water, making it one of the deepest wells drilled. BP as the operator owning a 62% interest in Tiber, along with partners Petrobras (owns 20%) and ConocoPhillips (owns 18%), will proceed with the appraisal phase for the Tiber well.
However, technical challenges in developing ultra-deep-water wells remain daunting due to extreme pressures and temperatures at lower water depths and the need for specialised drill ships on the surface. Drilling costs could be as high as $450,000-$500,000 per day, while total well costs could rise up to $250 million per well. This makes BP’s appraisal phase for the Tiber well worth watching as it determines the economic potential of the discovery after considering costs and years of development needed before starting up oil production.
