Oil still years away at BP Gulf of Mexico find

HOUSTON/NEW YORK (Reuters) - A big new oil find by BP Plc may spur excitement about the Gulf of Mexico's deepwater potential, but technical challenges mean that it could be years before any oil is brought to the surface.

BP described its Tiber discovery as "giant," which according to the U.S. Energy Information Administration is a find of 500 million barrels or more.

But the field is located in 4,132 feet of water in the Gulf of Mexico, 250 miles southeast of Houston, and commercial production could be delayed for a decade.

"It's likely to be on the order of 10 years from now before the first oil flows," said Leta Smith of IHS Cambridge Energy Research Associates. "It's miles from infrastructure."

The total depth of the Tiber well is 35,055 feet, one of the deepest wells ever drilled by the oil and gas industry, BP said.

GIANT DISCOVERY

A BP spokesman said Tiber could be bigger than Kaskida, a Lower Tertiary find made in 2006, which has an estimated 3 billion barrels of oil in place.

"(Tiber) has extended the known play toward the west from the Kaskida discovery. You had Jack and St. Malo to the east, Kaskida extended to the west and now Tiber extends it even further to the west," said Matt Snyder, lead Gulf of Mexico research analyst for Wood Mackenzie.

"But as BP indicates, this is an exploratory well, so a lot of appraisal has to take place to determine the eventual size of the discovery and its commerciality," he added.

TECHNICAL CHALLENGES

The Lower Tertiary trend, also known as the Paleogene trend, is a deep formation under the Gulf of Mexico that is said to offer the possibility of huge new reserves but tests the limits of technology and economics.

"Ten years ago you would never have seen (it) even considered or contemplated as being a prospect worthy of evaluation. The technology continues to march forward," said Mark Gilman, an oil analyst at Benchmark Co, but he also sounded a cautionary note.

"This play, albeit within the deepwater Gulf of Mexico, is very different from anything that has been produced up to this point. There is no production analog at this juncture in the Lower Tertiary," he said.

If the field enters production, BP will also have to figure out how to bring the oil onshore.

The nearest production is at Gunnison, more than 50 miles northwest of Tiber. Choices include pipeline or a floating production and storage and offloading vessel (FPSO).

OIL EXPLORATION UNHINDERED

Some said the discovery belies predictions that lower oil prices would slow the progress of oil exploration.

Crude dropped from a record high near $150 a barrel in July 2008 to below $33 a barrel in December as the recession hit fuel demand. Prices have since rebounded to around $68 a barrel on economic optimism.

"Since September last year, most analysts have been warning of a supply shortfall based on the idea that lower oil prices would undermine project economics. That's a very shortsighted and misguided view," said analyst Antoine Halff of Newedge Group.

"Futures projects are not driven by day-to-day market changes. The recent drop in prices are just one side of the picture. The other side is decreasing costs," he said. (Editing by Christian Wiessner)