U.S. Deep-Water Oil Ready for Tapping

Chevron and its partners announced Tuesday that their deep-water "Jack Field" test well in the Gulf of Mexico had passed its initial production tests. The results clear the way for the development of the field's oil reserves, which could in time add substantially to known U.S. reserves.

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Oil industry analysts say a well drilled deep into the floor of the Gulf of Mexico appears to herald a new U.S. energy source. A trio of oil companies led by Chevron has announced that for the first time they've successfully extracted oil from the deeper waters of the Gulf.

NPR's Jim Zarroli reports.

JIM ZARROLI: The new well is located 175 miles off shore in a part of the Gulf where the water is 7,000 feet deep. Chevron said yesterday that the well -called Jack 2 - has been producing oil at a rate of about 6,000 barrels a day.

Larry Nichols is chairman and CEO of Devon Energy, one of Chevron's partners. He pointed out yesterday that the new field is virtually in the United States' backyard.

Mr. LARRY NICHOLS (Chairman and CEO, Devon Energy): This could not have happened in a better place. The Gulf of Mexico is close to major oil and gas markets, has a favorable physical regime and has relatively less political risk than almost anyplace else in the world.

ZARROLI: But the significance of the find goes beyond this one well. Oil companies have been drilling for many years in the shallow waters of the Gulf. Until about a decade ago there was little hope of going much farther out to sea. But advances in technology have changed that. To extract oil from the Jack 2 well, Chevron and its partners drilled 20,000 feet into the sea floor.

Gary Taylor is a senior writer at Platts Oilgram News.

Mr. GARY TAYLOR (Senior Writer, Platts Oilgram News): It's been a difficult area because of the salt structures that block a clear view of what might be down there. Plus, the wells themselves are very expensive and, you know, requires partnerships among several large companies.

ZARROLI: In order to get the oil to market, pipelines will have to be built along the sea floor, and that will take several years. Despite the costs, many people in the industry believe the potential of this part of the Gulf, which is known as the lower tertiary, is huge.

Analyst David Heikkinen of Pickering Energy Partners says the region could eventually make up for the loss of production elsewhere in the Gulf.

Mr. DAVID HEIKKINEN (Managing Director, Pickering Energy Partners, Inc.): The shallower waters have produced about 27 billion barrels of oil. I think the industry estimates now are in the lower tertiary trend there is about 15 billion barrels of oil potentially there, and that'll probably increase as more wells are drilled.

ZARROLI: And even if the region produces far less oil than expected, that could still add significantly to U.S. oil production. Analyst John Kilduff of Fimat USA says the new field could be a relatively stable source of oil for the United States and could easily exceed what's extracted from Prudhoe Bay in Alaska.

Mr. JOHN KILDUFF (Senior Vice President, Energy Risk Management Group, Fimat USA Inc.): This is oil that'll come on the market, stay on the market, and not really be a source of worry for the oil markets, except subject to hurricanes.

ZARROLI: What the new field won't do is make the United States energy-independent. Even if the field produces as much as 15 billion barrels of oil during its lifetime, that's still a small fraction of world reserves. The United States alone uses almost six billion barrels of oil a year. And demand from countries like China and India is growing. That means the new field is not likely to have much of an impact on oil prices.

Jim Zarroli, NPR News, New York.

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