On the heels of BP's corrosion problems in Alaska's Prudhoe Bay, Chevron Corp., San Ramon, Calif., has hit pay dirt in the U.S. Gulf of Mexico -- 270 miles southwest of New Orleans to be exact.
The record-setting production test on the Jack #2 well at Walker Ridge Block 758 was completed more than 20,000 feet below the sea floor. The well was drilled to a total depth of 28,175 feet. During the test, the well sustained a flow rate of more than 6,000 barrels of crude oil per day (bpd), possibly boosting U.S. gas and oil reserves by as much as 50%. Optimists predict that could translate into 3 billion to 15 billion barrels of oil.
According to The Wall Street Journal, the discovery region could become the biggest new domestic source of oil since the discovery of Alaska's North Slope, which surrounds Prudhoe Bay, more than 30 years ago.
"A test well is already flowing 6,000 bpd, and if even the low end of reserve estimates is accurate [3 billion barrels], [that will] represent 400,000 bpd for 20 years, as much as Prudhoe Bay produces, currently," said global brokerage firm Fimat USA analyst John Kilduff, in a letter to the firm's clients.
Chevron --- one of IndustryWeek's IW 50 Best Manufacturers for 2006 --- owns half of the well, while Oklahoma City-based Devon Energy Corp. and Norway-based Statoil each own 25%.
"Chevron continues to demonstrate its leading position employing deepwater exploration technology to develop new supplies of U.S. crude oil and natural gas with projects such as Jack," said George Kirkland, executive vice president Upstream and Gas, in a Sept. 5 press release. "Our strong strategic position in the deepwater Gulf of Mexico will continue to be a platform for future growth for years to come."
At A Glance
San Ramon, Calif.
Primary Industry: Petroleum & Coal Products
Number of employees: 59,000
2005 In Review
Revenue: $194.5 billion
Profit Margin: 7.25%
Sales Turnover: 1.55
Inventory Turnover: 39.46
Revenue Growth: 27.34%
Return On Assets: 15.13%
Return On Equity: 31.17%
However, this recent discovery won't translate into lower gas prices for some time.
The fact that the oil is more than 20,000 feet below the ocean bottom means that it will take time and money to pipe the oil to the surface. Some industry insiders believe it could take five to 10 years before the oil makes it to refineries.
Fortunately for Chevron, net income for the first six months of 2006 was up $1.9 billion to $8.3 billion -- giving the company the means to bring the oil to the surface.
The company also may benefit -- in the form of royalty-free oil -- from a mistake in an oil lease eight years ago. While the majority of the oil recently discovered in the Gulf of Mexico will be subject to federal royalty payments, oil found in two blocks of the field could be exempt from such payments, according to a Chevron statement.Whether or not royalties will be paid is yet to be seen.
In other news, Idriss Deby, the controversial president of Chad, on Aug. 26 ordered the expulsion of Chevron and Malaysia-based Petronas claiming the companies failed to pay $450 million in taxes on oil revenue. According to Reuters, Chevron said it has fully complied with all its tax obligations and remains in communication with Chad over its business interests there.
Chad receives 12.5% of the oil revenue from the consortium; Chevron and Petronas get 25% and 35% respectively.
According to The Wall Street Journal, Chevron's CEO, David O'Reilly, agreed to pay an unspecified amount to settle the unpaid-tax claim.
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