By Dow Jones Business News,
December 18, 2013, 04:05:00 AM EDT
BP to Write Off $1 Billion on Failed Well
LONDON-- BP PLC said Wednesday it would write off more than $1 billion in costs related to an unsuccessful Brazilian
well, but also said it made a large oil discovery in the deep water Gulf of Mexico.
BP said the Pitanga exploration well on Block BM-CAOL-13 in the Camamu-Almada basin, offshore Brazil, found no
commercial quantities of oil or gas. The company said it would therefore write off $1.08 billion in costs, of which $850
million relates to the value of the block and the rest covers the costs of drilling.
Peter Hutton of RBC Capital Markets said the write-down, though large, wasn't out of line with other exploration
revaluations across the industry. "It's a lot of money, but it's not unique," he said.
The oil industry is in the midst of a huge ramp-up in exploration world-wide, in an effort to replace the oil it
extracts from aging existing fields.
But the days of easy oil are over, and companies now have to search for it in more difficult areas and use more costly
technologies to extract it. They have to drill offshore in deeper water and often are dealing with high-pressure and
high-temperature reservoirs, which are more technically challenging and costlier. As a result, an exploration well now
costs around double what it did two or three years ago.
BP separately said it has made a "significant" oil discovery at its Gila prospect, which it co-owns with
ConocoPhillips, in U.S. waters in the Gulf of Mexico. Appraisal drilling will be required to determine the size and
potential commercial value of the discovery, BP said.
The Gila discovery was made by an exploration well on Keathley Canyon Block 93, about 300 miles southwest of New
Orleans, in 4,900 feet of water. BP owns a majority interest in the Gila discovery.
BP said 2013 has been its most successful year for new-field exploration for almost a decade, with 15 completed
wildcat exploration wells. These have resulted in seven potentially commercial discoveries, giving a new-field-
exploration success rate of more than 40%, the company said. A wildcat well is an exploratory oil well drilled in land
not known to be an oil field.
"The successes and opportunities now being delivered through our increased exploration activity confirm our confidence
in our ability to sustain BP's resource base," said Lamar McKay, chief executive of BP's upstream unit. "This success is
being mirrored in improved operating performance delivery across BP's upstream business."
Selina Williams contributed to this article.
Write to Ian Walker at email@example.com and Razak Musah Baba at Razak.Baba@wsj.com
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