CS on BP's Tiber find
BP announced a major oil discovery at its Tiber Prospect in the deepwater Gulf of Mexico. The Tiber field, located in 1,200 metres of water, is expected to hold at least 3 billion barrels of oil, according to Financial Times. The well, drilled to a total depth of approximately 35,055 feet (10,685 metres), found oil in multiple Lower Tertiary reservoirs. BP is the operator and holds a 62% interest, while the remaining interest is held by Petrobras (20%) and ConocoPhillips (18%). BP was up 3% relative to the sector on this yesterday, imparting 20p of upside (or $4bn of NPV for the discovery). We believe this about 15p overvalued, for the following reasons:
(1) It's deep - 10,000m. That's deeper than Everest is tall. Technically this will be tough, and development costs will be high - $15/boe or higher. There has never been an economic well drilled in the Paleogene (Lower Tertiary) of the Gulf of Mexico;
(2) It's big (giant in fact) - more than Kaskida, which is >3bn boe - but recovery factors will be low. At their upstream seminar in Houston, BP talked of 5%-15% recovery factors, rising with water flood to c.20%. So a 6bn boe field may kick out 1.2bn boe recoverable (730mm boe net to BP).
(3) We won't see it soon.
A) The technology is not there to make this economic yet.
B) BP does not have $12bn to fund its part of the development yet.
C) This is just a first exploration well - they need to appraise and delineate the reservoir before development. Discovery to first oil times have been stretching out as the new oil gets more complex, with 10-12 years being about the norm.
Valuation: 730mmboe net to BP (assuming all oil), production start up post 2020, $15/bbl development cost/$5/bbl opex, $70/bbl long term oil price. This results in at c.$1.0/bbl, or $730m net to BP. It is a giant field, but with a small impact on BP's giant balance sheet.
Source: Company press release; FT.com; Credit Suisse estimates
Extracted from Credit Suisse Global Oil Daily 03 September 2009 |
