Peak oil theorists don't know Jack
By Patrick Brethour
The elephants aren't extinct yet.
Chevron Corp. and its partners say they have tapped into an area that may contain as much as 15 billion barrels of oil in the ultradeep waters of the Gulf of Mexico — the kind of massive reservoir of crude that the industry dubs an elephant discovery.
The days of such discoveries were supposedly gone, with oil supplies peaking as the world simply ran out of big oil-producing fields, according to pessimistic forecasters. Instead, high technology and sky-high oil prices have combined to transform dud prospects into billions of barrels of crude.
“The industry is still very capable of coming up with new ways of producing oil,” says Michael Lynch, a prominent opponent of the notion of peak oil — that global supplies of crude are set for a marked decline.
The exact size of the reserves at the Chevron well, called Jack, aren't yet known. But the company said the wider area, known as the Lower Tertiary, could contain between three billion and 15 billion barrels of recoverable oil. At the upper end of the range, that would rival the Prudhoe Bay deposits in Alaska.
And it could increase U.S. domestic reserves by 50 per cent. Only part of that overall total, however, could be attributed to the Jack prospect, which some analysts said Tuesday is likely to amount to 500 million barrels.
Whatever the ultimate size of Jack, its true importance lies in when it was discovered — earlier this decade, rather than in the 1960s or 1970s, said Mr. Lynch, president of Strategic Energy and Economic Research Inc. It is proof positive that higher commodity prices and improvements in exploration technology can result in major new discoveries, he said.
That is the case at Chevron's Jack well in the Gulf of Mexico, nearly 300 kilometres from the U.S. coast. Massive caps and peaks of prehistoric salt had defeated earlier exploration efforts, chewing up the sound waves that the industry uses to create seismic pictures of reservoirs.
“It soaks it up, distorts it,” said Stephen Hadden, senior vice-president of exploration and production at Devon Energy Corp., which has a 25-per-cent stake in Jack and other prospects in the Lower Tertiary region.
Devon, with proved reserves of 2.1 billion barrels of oil and gas, said it could more than double its reserves from its holdings in the area. Devon said its Lower Tertiary prospects could contain the equivalent of six billion barrels of oil, using the expansive measure of unrisked resource potential. Despite the caveat, Devon shares jumped 12 per cent, with analysts saying the firm is an alluring takeover target.
“The larger companies are running out of room to grow and the deepwater Gulf of Mexico is right down their alley,” said Oppenheimer & Co. analyst Fadel Gheit. “They really have no options left — Russia is for all practical purposes closing its doors, the Middle East is radioactive, Venezuela is kicking us out, and the Canadian oil sands, I think, are played out.”
Devon's Mr. Hadden said several new technologies and techniques were brought to bear on Jack, combining to allow the partners to fashion a picture of the reservoirs underneath the previously impenetrable salt caps. More powerful computers and refined algorithms were part of that success. “It's a technology that's really evolved over the last six or seven years,” he said.
Such technology reduces the risk of ultradeep exploration in the gulf, where future wells are likely to cost up to $120-million (U.S.), Mr. Hadden said, declining to say how much Jack cost.
Jim Lovasz, senior engineering analyst at Ross Smith Energy Group Ltd. in Calgary, said new simulation technology is also playing a part in opening up new frontiers to oil exploration.
New frontiers such as the Lower Tertiary will keep the global supply of oil growing, Mr. Lynch said — although it's not likely to silence the advocates of peak oil.
“This won't convince the bulk of them. For the rest of us, it does serve as a reminder that there are still a lot of things that can still be done.”