BP: It’s not every day an oil major announces a “giant” discovery. But the UK’s BP did precisely that on Wednesday. The Tiber field is in the Gulf of Mexico’s deep waters, about 250 miles south-east of Houston. The find could be bigger than BP’s Kaskida field, which holds over 3 billion barrels of oil.
The discovery is obviously good news for BP, and for the minority owners, Brazil’s Petrobras and the US’s ConocoPhillips. It’s always nice to find oil in a politically stable part of the world with relatively low tax rates. The US, which currently imports nearly 60 per cent of its petroleum, will welcome a big field in the country’s backyard. But even if Tiber is gargantuan, it isn’t likely to change the world of oil and gas.
To start, the field poses big technical challenges. It lies nearly 11 km under the sea’s surface. It will require the deepest wells ever. BP’s Thunderhorse project, also in the deep waters of the Gulf of Mexico, took nearly a decade to get up and running. The hope is that past experience will make this project a little easier.
But even if all goes well, Tiber just isn’t that big. Say the field has 1 billion barrels of recoverable reserves, a plausible guess based on similar finds. Even if the oil flows out fast, it is unlikely to make a big dent in a country that consumes 21 million barrels of oil per day. If the field has a life of 15 years and pumps 66 million barrels a year, it would supply less than 1 per cent of US annual consumption.
The effect on BP isn’t likely to be much larger. After taking into account exploration, production and marketing costs, each barrel has a net present value of about $3, according to some analysts. Do the maths, and BP’s 62 per cent stake in the field is worth about $1.9 billion, or just over 1 per cent of its current market capitalisation. If that’s right, the 3 per cent increase in BP share price on Wednesday looks excessive.