BP oil drilling rig in Gulf of Mexico

The Wall Street Journal reports today that the oil industry is on the verge of cracking open a deep-water region in the Gulf of Mexico that could become America's biggest new domestic source of oil since the discovery of Alaska's North Slope more than a generation ago.

Chevron Corp. and partners Devon Energy Corp. and Norwegian company Statoil ASA are expected to announce today the first successful oil production from the region, a 300-mile-wide swath of the Gulf that lies below miles of water and deep within a bed of ancient rocks geologists call the lower tertiary.

The Journal says that the production test paves the way for the development of the three partners' Jack field, located 270 miles southwest of New Orleans, and ultimately for dozens of comparable discoveries under federal lease to companies that include Anadarko Petroleum Corp., Petróleo Brasileiro SA, Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC.

Chevron and Devon officials estimate that the recent discoveries in the Gulf of Mexico's lower-tertiary formations hold more than three billion barrels' and perhaps as much as 15 billion barrels' worth of oil and gas reserves. If the industry succeeds in finding 15 billion barrels of oil, it would boost America's current reserves of 29.3 billion barrels by 50%.

The Journal says that if all these new finds were successfully exploited, they could approach or perhaps exceed the output of Alaska's giant Prudhoe Bay, the largest U.S. oil field.

In a statement, Statoil said today that it and partners Chevron and Devon have successfully completed a production test in a highly challenging structure in the Gulf of Mexico.

"The Jack 2 well test data are encouraging and may form the basis of future development projects in Walker Ridge," says Øivind Reinertsen, senior vice president of Statoil's Gulf of Mexico assets. "These development projects will be technologically challenging, allowing us to leverage our subsea and floating production experience."

During the test the Jack 2 well sustained a flow rate of more than 6,000 barrels of oil per day. Test results are very encouraging and may indicate a significant discovery. The full magnitude of the field's potential is still being defined.

Statoil and its partners plan to drill another appraisal well in the Jack structure in 2007.

The Jack production test has been very challenging and the deepest successful well test in the Gulf of Mexico. The Jack 2 well was drilled to a total depth of 28,175 feet.

The operator Chevron has an interest of 50% in the Jack field. Statoil and Devon each have a 25% interest.

"This area is one of the new and promising deepwater areas in the Gulf of Mexico," says Mr Reinertsen. "Statoil has a working interest of 25% in Jack, 6.25% in the St Malo discovery and 20% in the Tucker structure. In addition we have interests in several exploration licences planned to be drilled in 2007/2008. This makes Walker Ridge a core area for Statoil in the Gulf of Mexico."

In 2005 Statoil acquired Encana's entire deepwater portfolio in the Gulf of Mexico, consisting of 239 blocks with an average interest of 40%. The Tahiti development and the Tonga, Fox, Jack, St Malo and Sturgis discoveries are key assets in the portfolio. The transaction has made the Gulf of Mexico a potential core area for Statoil. It has also significantly expanded the group's deepwater position. The first oil was struck in the Jack structure in 2004.