BP's Giant Oil Discovery Proves Gulf of Mexico is Drillworthy

(MoneyWatch)  Giant oil discoveries -- like BP's deepwater Tiber find in the Gulf of Mexico -- have a talent for triggering an analytical romp into its potential, what it means for the company, the industry and the world. The pessimists and optimists -- all calling themselves realists -- chime in and the opportunists look for opportunity.

BP announced Wednesday a giant oil discovery -- that could hold up to 3 billion barrels -- in the Gulf of Mexico. The Tiber well is located in Keathley Canyon, which is within a geologic formation called the Lower Tertiary, where BP has a leading acreage position. The well was tapped more than six miles beneath the surface, one of the deepest ever drilled by the oil and gas industry.

The find is more than noteworthy. It's also a drop in a global bucket that consumes roughly 84 million barrels a day. BP's discovery is an example of how far technology has come and how costly it's getting to reach oil reserves.

BP is already the largest producer of oil and gas in the Gulf of Mexico with net production of more than 400,000 barrels of oil equivalent a day, according to the company.

BP clearly has an interest in the Gulf of Mexico. But this discovery cements BP's commitment to the Gulf's deepwaters, specifically in the Lower Tertiary. BP's first discovery in the Lower Tertiary was Kaskida in 2006.

And the company continues to bid on offshore oil leases. Last month, BNET wrote about BP's leading rolein a U.S. government auction for offshore leases in western Gulf of Mexico. BP made 37 bids for $50.6 million. More than half of that amount -- $28 million -- went towards one deepwater tract in Keathley Canyon.

Keathley Canyon is home to BP's Kaskida and the new Tiber well. A block in Keathley received the most number of bidsin the offshore leasing auction in August 2007. A block in Keathley received the highest bid during a 2006 lease sale, which BP nabbed for $21 million.

The question is whether other oil majors, previously unimpressed with the region -- will return. BP dwarfed other company's total bids last month. Chevron bid $9 million and Exxon more than $8.5 million. And as Bloomberg recently noted, Exxon CEO Rex Tillerson is focusing his $20 billion drilling budget in places such as Brazil and Qatar.

Brazil is certainly worth the time and effort. Its Tupi field, with an estimated 8 billion barrels of oil reserves, is the largest oil discovery in three decades. But even Brazil's state-run Petrobras, which has a 20 percent interest in the BP-operated Tiber field, finds the region drillworthy.