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Big Oil Sees Profits—and Challenges—in Deep Waters

Companies are digging deeper and searching farther in the hunt for big oil.

BP

The deep waters off the coasts of countries like Brazil and Sierra Leone have recently become hot spots for large discoveries of oil this year as exploration continues to move further from shore and technology improves.

“Deep water exploration—defined as over a 1,000 feet—is expected to be the premiere growth area throughout the world in the next 10 to 15 years,” said Bruce Bullock, director of the Maguire Energy at Southern Methodist University’s Cox School of Business. “That’s largely what’s left in terms of finding larger oil deposits.”

A discovery off Sierra Leone, for example, was the first offshore discovery made in that region, according to a statement released by Spanish oil company Repsol, which has a 25 percent stake in the find. The well was found 18,500 below the Atlantic Ocean and another 5,900 feet into the earth. (Anadarko , Woodside and Tullow also have stakes in the find.)

Repsol has had its hand in significant finds in Brazil and Venezuela, too. The company announced this month that they discovered the largest oil well ever in Venezuela. And in Brazil, Repsol, along with partners Petrobras and British Gas, announced a large find in the deep water’s of the Santos Basin.

Meanwhile in the Gulf of Mexico, BP said it discovered a large well about 250 miles south east of Houston. BP says it is one of the deepest wells ever drilled having been found 4,132 feet below water and an additional 35,000 feet below the seabed—taller than Mount Everest. (Petrobras and ConocoPhillips are co-owners of the site.)

The discovery was made using seismic technology, 3-D modeling and other technology developed both inside BP and from other sources like offshore drilling company Transocean, according to BP spokesperson Robert Wine.

“New technology is certainly helping,” said Bob Fryklund, vice president of energy research firm IHS CERA. “But at the end of the game, we don’t know if there’s anything down there until we drill.”

BP estimates the discovery might contain as much as 3 billion barrels.

While the finds are big, they don't come cheap.

Exploring these deeper areas, assessing what’s there and then digging requires a lot of up-front investment. Add to that the fact that many of these areas don’t have existing platform and pipeline infrastructure to deliver the oil to land, increasing costs. Experts estimate it could be about five to seven years before these new finds are delivering oil to consumers, and these companies could sink anywhere from $3 billion to $5 billion before making any money on the new discoveries.

For now, with current crude oil prices around $72 a barrel, it seems worth it. “In a $70 [oil] world, these sorts of expeditions work; you’re going to get a return in investment,” said Alan Murray, an exploration service manager for energy research firm Wood Mackenzie. “In a $40 dollar environment, it’s harder to support the cost involved to generate a return.”

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