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With such long horizons as one finds in the oil industry, it is quite easy to get very giddy about finding new reserves. Watching the current glee in media regarding the discovery by BP, BG and Anadarko of potential oil in Tiber, Brazil and Sierra Leone, I am reminded of the perennial glee witnessed in last November’s U.S. Presidential election. It was widely believed that there was a new revolution in the making, a “change” that the Obama team ran their campaign on. But, there is indeed a bigger change as I sit here and peruse the implications of the new oil finds.

Almost everyone in the industry is happy that this is the start of the finding quite a few “giants” in the years to come. I certainly don’t deny that and a fair share of analysts have already started talking about the complexity associated with this project including the physical and monetary conditions. The monetary conditions are well-understood that initial drilling costs are expected to be really high while future costs will lower as efficiencies of drilling increase. Physical conditions need no introduction as the current equipment require a “significant” upgrade to drill in these challenging environments of high temperature and high pressure.

But the change that these findings signify is the start of the transition of finding oil from the Miocene region of the earth’s crust to the Lower Tertiary. If you are in the O&G industry, you will no doubt know that there have been significant projects offshore in recent times to drill into the Lower Tertiary offshore. We know already that onshore drilling has reached the same stratigraphic section but this is the beginning of a new play in offshore drilling.

If one understands the stratigraphic section in the Gulf of Mexico (GOM), the Miocene is on top of the Lower Tertiary.  The Lower Tertiary is older and includes the time periods of Pliocene, Miocene, Eocene, Oligocene and Pliocene. If you look at the current production in GOM, it is Miocene in age. When the Mahogany field came on in 1993, significant salt deposits were found blocking the seismic signals. Nobody knew whether oil lay under the salt deposits until they sent an appraisal well to find out. It is the same case here until someone sends an appraisal well to collect the first sample.

The term “pre-salt” has been used quite liberally though there have been no explanations to show what it means. Typically, salt is present in the reservoir and sending any seismic signals resulted in a bounce from the salt deposits. Salt masks the seismic signals such that it indicates that there is no oil present at all. Only when Mahogany and Enchilada proved that oil existed beneath the salt did GOM become such an important player for oil drilling.

I am currently looking at the data for production from deepwater wells and the current lead time from discovery to first production in the entire deepwater Gulf of Mexico averages around 6 years. The increasing complexity and the overall immaturity of the Lower Tertiary zone enables companies to be very cautious in committing to a project in this area. Infact, BP has acknowledged that the Tiber won’t contribute till 2015 (although my guess is 16 years from now).

The Lower Tertiary has very tight and lowly permeable formations. The pressure for oil is at 25,000 pounds per square inch! Therefore, a higher pumping pressure is needed along with lots of proppants to hold these fractures and provide an efficient conduit for transferring oil from the reservoir to the wellbore.

It is quite reasonable to assume that this post is primarily talking about the challenges and complexities of determining the economic viability of drilling and bringing this oil to the surface. Infact, an earlier post talked about how countries, who possess oil, need to strike the right balance from transitioning to an oil exporter. Also, it is no doubt to the testament of the industry in getting better at finding and producing oil using the latest seismic surveys and IT software for identifying pockets of oil. It helps small companies to become medium players while it allows companies like BP to improve its recovery within its mature portfolio and increasing its reserve base.

But the biggest change is the transition to a new era that comes from the end of finding oil through conventional means (especially onshore). You can compare production capacities of OPEC and non-OPEC and argue about peak oil. You can speculate on Saudi Arabia’s actual reserve estimates. You can speculate the power of OPEC and come up with conspiracy theories on how OPEC manipulates oil prices or speculators driving up the price of oil incessantly. It doesn’t change the fact that we need horizontal drilling and the latest 4D-technology to understand and find new deposits. What matters is that we are now on the transition to finding oil in deepwater indicating the beginning of a completely new ballgame.

All those doing the talking about peak oil and unlimited oil supplies are forgetting that this is a transition in the making. It is, indeed, an unique sight to see the transition from finding Ghawar in 1948 to finding Tiber in 2009.

Image Source: Oil Rigs in Baku at Caspian Sea by Viggo Langer

Update: I made some changes to this post by polishing and tidying up grammatical mistakes. Apologies for the bad English posted originally.