New advancement in technology being led by BP may give oil stocks a boast next year as oil companies push to tap new sources for oil that is getting much harder to get at.
The Associated Press is reporting that BP (BP) is leading an industry-wide push to develop technology that can retrieve oil so deep beneath the sea floor under such pressure and temperature that current equipment would be crushed.
BP’s move to advance its technology is being seen as a much-needed offensive play after the Deepwater Horizon debacle.
Additionally, the amount of oil that could be tapped if this is a success could be the biggest boom to oil companies — and oil stocks — in quite some time.
One BP field in the Gulf of Mexico, called Tiber, makes the Macondo field that the Deepwater Horizon rig was probing look like simple puddle of oil. It is thought to hold 20 times the amount of oil as Macondo. At 35,000 feet below the sea floor — 6.6 miles into the earth’s crust — it is about twice as deep.
There’s an extraordinary amount of oil in similar discoveries around the world, several of which are controlled by BP. But BP first must figure out how to get it. New equipment, including blowout preventers far stronger than the one that failed on the Deepwater Horizon, must be developed. Then BP must convince regulators it can tap this oil safely.
“There’s 10 to 20 billion barrels of oil just for BP in this,” Kevin Kennelly, who runs BP’s global technology operations, to the wire service.
At today’s prices, that could be worth up to $2 trillion.
BP is just the company to succeed as well — being one of the few companies with the technical know-how and finances to undertake such a project. As the AP notes, “it is the biggest producer, investor and leaseholder in the Gulf of Mexico, which even with the onshore oil boom in states such as Texas and North Dakota still accounts for 17 percent of domestic production.”
BP stock and that of Exxon (XOM) and Chevron (CVX) have been lagging in the broader market year to date, with BP stock and CVX stock up 11% and XOM stock up only 8%. Royal Dutch Shell (RDS.B) is down some 3% year to date.
Clearly oil stocks need some sort of a boost, and the news of a push to hit a wealth of untapped oil seems just the type of things investors like to hear.
Of course, pushing for technology is one thing. Actually having it — and the green light by regulators — is quite another.
As the press wire notes, such a success would not be without risk.
Robert Bea, professor emeritus of engineering at the University of California and an expert on offshore technology who studied the Macondo blowout, says more than just better equipment must be developed. The especially hard part, he says, is developing a management system that can properly direct and oversee such complex projects. Bea, who has testified for plaintiffs suing BP over the spill, says it takes “decades of concerted work” to do so safely.
Still, the push into new areas for new sources of oil is not about to stop, and BP bolding taking the lead on underwater drilling after such a PR nightmare in the Gulf is sure to give investors reasons to take note.