Peak oil enthusiasts seem convinced that the world is heading for a cataclysmic change as the production of oil declines over the next generation. Predictions range from food riots to mass starvation to the extinction of the human race. There's only one problem with all this - the industry keeps finding more and more oil.
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New Discoveries
In July 2009, Occidental Petroleum (NYSE:OXY) released the stunning news that it had found a "new" oil field in California, one of the most mature areas in the world for exploration and development. The discovery was in a range from 150-250 million gross barrels of oil equivalent (BOE), and one third was oil.

Now of course the peakers scoffed at the news, shouting that the entire discovery was only one to two days of consumption for the world. This may be true, but to fully understand this discovery, you have to drill down on the press release and conference call that accompanied the news.

Behind the Headlines
The reserve estimate was based on six wells drilled in a "small producing area" in Kern County, California. The company strongly hinted that similar resources could be elsewhere on its 1.1 million acres in the state. The discovery was a "multi-pay zone" and contained conventional and unconventional pay, although the 150-250 million gross BOE was based on just one conventional pay zone that requires no hydraulic fracturing. The company said that finding, development and lifting costs are expected to be "significantly less" than $10 per BOE.

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An interesting exercise would be to extrapolate this discovery to the entire 1.1 million acres that Occidental has in California. A starting point to do that would be to find out how much acreage the six wells cover. Occidental wouldn't disclose this but when one analyst guessed it at 10% of the total, management would only say that the reserve acreage was "much smaller."

Obviously, there are many unknowns but it is safe to say that this is a multi-billion barrel discovery, and if a find like this could sit unknown for more than 100 years in a worked over area like California, just imagine how much else is out there.

Other Discoveries
If the Occidental discovery was not enough, BP, Inc (NYSE:BP) announced a discovery in early September 2009, at Tiber in the Gulf of Mexico, along with its partners Conoco-Phillips (NYSE:COP) and Petrobras (NYSE:PBR). The reserve size estimates were sketchy, but some analysts said it could surpass the 3 billion barrel discovery nearby at the Kaskida field.


A week later, Petrobras announced another large find off the coast of Brazil in the Santos Basin, along with Repsol YPF SA (NYSE:REP). The Guara discovery contains 1.1 to 2 billion BOE and will produce 120,000 barrels per day by 2012. Right next door is the Tupi Field that will produce 100,000 barrels a day in phase one by 2010.

Bottom Line
Peak oilers are constantly ringing the alarm bell on the subject of resource depletion, but it seems that every other week another international or independent company makes a discovery. These may not be giant fields, but they can add up pretty quickly, casting some doubt on the more extravagant claims. (For more, see Peak Oil: Problems And Possibilities.)

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