Canadian oil and gas producer Nexen Inc. and its partners said yesterday they found a huge oil pool beneath a thick salt layer in the Gulf of Mexico after drilling the basin's deepest well ever.Nexen, the lead partner in the Knotty Head find about 273.5 kilometres southeast of New Orleans in water 3,500 feet (1,067 metres) deep, said the well encountered 600 feet (183 m) of net oil pay in multiple zones, a good indicator that the pool is rich with oil in several spots.
Kevin Finn, a spokesman for Nexen, said the partners will have a better idea of the size of the find after drilling appraisal wells next year. "The additional drilling is going to provide lots of information, and we are excited," he said. "Six hundred feet [of net oil pay] is a very encouraging sign."
The well reached a depth of 34,189 feet (10,420 m) and cost US$140-million to drill. While the company said it needs to drill more wells to size up the field, analysts estimated the reservoir could contain more than 500 million barrels of oil, making it one of the most significant discoveries made in the Gulf. It's early days to come up with a reserve estimate, but assuming the pool contains that amount of oil, "the find is worth about US$6-billion assuming US$12 per barrel for the value of the reserves in the ground, incorporating the time it takes to produce them," said Dan Pickering, president of Pickering Energy Partners, a Houston-based energy research firm. "If you think about 500 million barrels produced at US$50 a barrel, you are talking US$25-billion in revenue over the life of the field."
Knotty Head is one of the top 15 discoveries made in the Gulf, Mr. Pickering said. The biggest one is the Mars field found by Royal Dutch Shell PLC in 1989 and containing 1.5 billion barrels of oil. The most recent finds are comparable to Knotty Head. They include Tahiti, made by Chevron Corp. in 2002 and containing 500 million barrels of oil. "[Knotty Head] is a sizeable field compared to others in the Gulf of Mexico or onshore U.S.," Mr. Pickering said. "It is something that will clearly be developed."
The discovery is also significant because it confirms oil can be found in deep structures in deep waters, he said. Calgary-based Nexen is a 25% partner in the play. Anadarko Petroleum Corp., Chevron Corp. and BHP Billiton each own 25%. The discovery adds between $1.75 and $5.20 of value to Nexen's stock, UBS Securities Canada Inc. analyst Brian Dutton said in a research note entitled "Knotty and nice" in which he also raised the company's 12-month target to $58 from $55 due to the company's greater visibility.