Analyzing the Gulf oil discovery

A handful of you have spoken out about the details and implications of Chevron and Devon's huge oil field discovery in the Gulf of Mexico. To add to the discussion, here's an article on the matter that Energy Bulletin posted which was written by Randy Kirk, a senior financial analyst at an investment firm in San Francisco.
Kirk's analysis outlines 8 points that I'll summarize here, but it's a short article and worth the read if you're concerned about the topic.
  1. Skepticism of the estimate. The massive range (3 to 15 billion barrels) alone lends distrust while the fact that it's comprised of no single field more than 300 million barrels is unusual.
  2. Very little is known at this point as it takes months to accurately estimate the size of an oil field while the extreme depth may add complications to the process.
  3. The time frames of 2010 for earliest production and 2013 for full production have been set with many projects in delay, so this is most likely a best case scenario.
  4. The use of tankers rather than faster, more efficient pipelines will place additional costs on the oil while limiting the amount of oil that is extracted.
  5. The wells are most likely composed primarily of natural gas and may have a greater impact on that market than the oil market.
  6. Political timeliness. The U.S. Senate is just weeks away from a vote that could lift the 25-year ban on offshore drilling near much of the nation's coastlines.
  7. Historical precedence of political timeliness. Last year, there was a similar discovery in Mexico advertising a possible 10 billion barrel potential. That number was quietly revised to 43 million barrels, this year. The announcement of the discovery came just months before the Mexican parliament was to vote on oil budgeting and expanded drilling.
  8. Return of investment would be roughly 3 to 5 years if gas was priced at $7. Kirk admits these are his own rough calculations.
[Source: Energy Bulletin]

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