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Deep Water Covers 180B Bbls Undiscovered Oil, Gas - Study

Deep water covers 180 billion barrels of the world's undiscovered oil and natural gas reserves, more than twice the amount yet found, Scottish energy consultants Wood Mackenzie said Wednesday.

Around two-thirds of oil and gas discoveries come from deep water now, as exploration successes on shore and in shallow waters become rarer, Wood Mackenzie said in a statement, citing a study it and fellow energy consultants Fugro Robertson conducted.

Brazil's Petroleo Brasileiro (PBR), has reaped the most value from deep water drilling, with deep water assets worth around $27 billion, Wood Mackenzie analyst Andrew Latham told Dow Jones Newswires.

Latham said seas deeper than 400 meters are considered deep water.

U.K. oil giant BP PLC (BP.LN) comes in second, holding deepwater assets valued around $23 billion. Rival Royal Dutch/Shell is third, with assets worth $21 billion.

"To date, the geography of deep water has been the story of the 'big four' countries, Angola, Brazil, Nigeria and the U.S.," Latham said, noting that Mexico looks set to join this group, once planned exploration by Petroleos Mexicanos SA (PEM.YY), or Pemex, begins.

Small and mid-size oil companies, such as Devon Energy (DVN), ConocoPhillips (COP), Kerr-McGee (KMG) and Murphy Oil Corp. (MUR) also have attractive exploration acreage, Wood Mackenzie said.

"In addition, Australia and Egypt have very substantial gas potential - each with yet-to-find potential of 80-120 thousand cubic feet," Latham said.

However, market access for the gas in these countries appears limited in the near future, he added.

Despite the vast resources waiting beneath deep waters, exploitation is difficult, with technical troubles and political maneuvering in some countries causing project delays.

U.K. oil services company John Wood Group (WG.LN) warned just last week that deep water project delays would hit its earnings this year, though it expects a recovery in the market in 2005.

Wood Group said earlier this year that host governments in some deepwater provinces, such as West Africa, have put the brakes on some projects to boost the involvement of local companies. This, combined with a focus on short-term returns by some of the oil majors, has slowed deep water developments.

Editorial Notes: There are some sobering things to consider here. One is that the Energy Return on Energy Invested (ERoEI) for deepwater oil is less than for conventional oil. That is, it takes a lot of energy to extract it. So effectivley much less oil will be available to the market than the stated figures, as a significant amount of oil will be used to build the platforms, drill and transport the oil. Because of this relative difficulty and high costs in producing deepwater oil, oil companies will likely not be able to extract it rapidly. So while it may slow the rate of decline of the world's oil production, deepwater oil seems unlikely to do much to offset the peak itself. The Association for the Study of Peak Oil and Gas (ASPO) claim that deepwater oil will itself peak by 2013, although it may be interesting to see if they push that figure back at all in light of these claims. Wood Mackenzie's earlier January 2004 report “New thinking needed for exploration?” outlines the world's dropping discovery trends, appearing to endorse earlier statements by ASPO.

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