By Dow Jones Business News, February 19, 2013, 05:49:00 PM EDT
By Ben Lefebvre
CORPUS CHRISTI, Texas--As the U.S. energy boom heats up in landlocked states from North Dakota to Oklahoma, some oil
companies are still making multibillion-dollar bets on finding crude in the deepest waters of the Gulf of Mexico.
About 600 workers at a shipyard here are building three-story steel structures that will make up Chevron Corp.'s
( CVX )outpost many miles offshore, in an area that geologists say is promising, but where almost no oil has yet been
pumped.
"It'll be the first house in the neighborhood," said Glenn Lohfink, the Chevron construction manager at the site.
The target Chevron is aiming at is called the Lower Tertiary, considered by many to be the Gulf of Mexico's last
frontier. Its heart is buried thousands of feet below sea level, hundreds of miles from shore and almost a three-hour
helicopter ride from New Orleans.
Lower Tertiary oil fields haven't been fully decoded by geologists, but Chevron is investing $7.5 billion just to
start tapping its first two discoveries there, the Jack and St. Malo fields. The company expects to install a platform
with the capacity to produce 177,000 barrels of oil and natural gas a day, generating annual revenue worth billions of
dollars at current prices of roughly $96 a barrel for decades to come.
Chevron's gamble underscores how deep-water frontiers remain alluring despite the massive reserves unlocked by
hydraulic fracturing in the onshore U.S. Such interest has pushed oil and gas drilling in the Gulf above the levels
reached in 2010 before the Deepwater Horizon disaster, which temporarily cooled activity there.
The bang oil companies get for their bucks spent in deep-water developments is so prodigious that it can beat drilling
thousands of onshore wells and dealing with hundreds of landowners, experts said.
"Once you pay it off you can make a tidy profit," said Wood Mackenzie analyst Norm Pokutylowicz, who added that Lower
Tertiary projects are expected to pump oil for 20 to 30 years.
The first commercial development of the Lower Tertiary, Royal Dutch Shell PLC's (RDSA, RDSB) Perdido field near the
Texas coast, began pumping oil in early 2010. Analysts say the reservoir is relatively shallow and not representative of
the big pool of oil Chevron plans to tap, hundreds of miles to the east.
But production from the core Lower Tertiary didn't start until last year, when a production ship owned by competitor
Petroleo Brasileiro SA ( PBR ), or Petrobras, began pumping crude out of the Cascade and Chinook fields, a development
that is being watched closely by the oil industry.
To minimize risk and deal with the lack of local pipelines, the Brazilian oil company decided to use a floating
production ship that could be moved if the experiment doesn't work out, instead of a more permanent platform.
But Chevron is confident enough to build a permanent platform. Steve Thurston, Chevron's vice president of deep-water
exploration and projects, said during an interview that the Lower Tertiary could account for nearly half of the
production in the U.S. Gulf of Mexico by the end of next decade.
"Our view of 'Wow, this is big,' is still there," Mr. Thurston said.
Chevron's platform will serve as a beachhead for further exploitation of the area, connecting not only Jack and St.
Malo but neighboring fields such as Exxon Mobil Corp.'s ( XOM ) Julia discovery.
-Angel Gonzalez contributed to this article.
Write to Ben Lefebvre at ben.lefebvre@dowjones.com
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