Sept. 5 (Bloomberg) -- Chevron Corp., the second-biggest U.S. oil company, completed the deepest successful test of a Gulf of Mexico oil well, showing it may be possible to produce billions of barrels from new undersea discoveries.

The well, operated and 50 percent owned by Chevron, tapped geologic formations that are as much as two miles deeper than the Gulf of Mexico fields pumped today. Deposits at those depths may hold between 3 billion and 15 billion barrels of oil, said Chevron spokeswoman Margaret Cooper. At the high end of that range, the reservoirs would rival Alaska's Prudhoe Bay.

Devon Energy Corp. and Statoil ASA, which each hold 25 percent of the project, known as Jack No. 2, said the test demonstrates the viability of fields such as Jack and BP Plc's Kaskida discovery, announced Aug. 31. Devon said in a statement that it could more than double its reserves with its holdings in the region, and the company's shares jumped.

``The farther offshore you go, the larger the unexplored potential,'' said Gene Pisasale, who helps manage $25 billion at Mercantile Bankshares Corp. in Baltimore and owns 832,000 Chevron shares. The flow of oil during the test, conducted in the second quarter and announced today, was ``substantial,'' said Pisasale.

As output has dwindled from wells in shallower Gulf waters, companies such as San Ramon, California-based Chevron and Hague- based Royal Dutch Shell Plc have pushed exploration farther offshore, seeking to boost their reserves. If they are successful, their finds might help sustain domestic U.S. oil production, which has been declining since 1970.

Alaska, Iran

Deposits totaling 15 billion barrels would exceed the 13 billion barrels of recoverable oil at Prudhoe Bay, the largest U.S. oil field, according to Dick Gibson, a Butte, Montana-based geologist who advises oil and gas companies. It would be almost as big as Ahwaz, Iran's biggest field, which holds an estimated 17 billion barrels of recoverable reserves, Gibson said.

Production of oil from the Jack prospect is probably six or seven years away, should the partners decide to go ahead with developing the field, according to Chevron and Statoil. Chevron is the operator of the project.

Benchmark crude oil futures fell 59 cents to $68.60 a barrel today on the New York Mercantile Exchange. Oil has more than tripled since early 2002 as new wells have failed to keep pace with rising demand.

Devon shares climbed $7.99, or 12 percent, to $72.14 in New York Stock Exchange composite trading, the biggest daily gain since May 1992. The stock is up 15 percent this year.

Chevron stock rose $1.51, or 2.3 percent, to $66.34. Statoil shares rose 1.5 Norwegian kroner to 176.5 kroner in Oslo.

`Over-hyped'

Investors may be putting more stock in today's announcement than is warranted, Ben Dell, an analyst at Sanford C. Bernstein, said in an interview. The test result announced today didn't change production estimates or the development timetable for the Jack prospect, which was discovered in July 2004, he said.

``It's probably the most over-hyped thing in the industry,'' said Dell rates Devon shares at ``underperform'' and doesn't rate Chevron stock.

The Jack prospect probably holds the equivalent of about 500 million barrels of oil, Daniel Barcelo, an analyst at Bank of America Securities LLC, said today in a note to clients. Chevron expects Jack to produce the equivalent of 60,000 barrels of oil a day when it comes online in 2012 or 2013.

The test of the Jack No. 2 well was done more than 20,000 feet beneath the sea floor in 7,000 feet of water, 175 miles (282 kilometers) southwest of the Louisiana coast. That beat the previous record depth for a well test, set by Chevron at its Tahiti field in 2004, Cooper said.

Tahiti

Chevron is building a platform for the $3.6 billion Tahiti field, which will have the deepest producing wells in the Gulf of Mexico when it begins operating in 2008. Tahiti holds an estimated 400 million to 500 million barrels and probably will pump the equivalent of 125,000 barrels a day.

Chevron's cash-flow per barrel of oil produced in the Gulf of Mexico probably will rise to $18 per barrel by 2010 from $11 now, said Barcelo, who rates Chevron shares a buy. That's because it is cheaper and more profitable to pump from large new fields than from declining reservoirs. The Gulf of Mexico is Chevron's third-largest source of crude, behind California and Indonesia.

London-based BP last week announced it found oil in the Kaskida prospect about five miles beneath the seafloor 250 miles southwest of New Orleans. BP operates and owns 55 percent of the project. Anadarko Petroleum Corp. owns 25 percent and Devon holds 20 percent.

Jack, Tahiti and Kaskida are part of a layer of rocks between 24 million and 65 million years old that span thousands of square miles beneath the gulf and may hold 3 billion to 15 billion barrels of oil and gas, according to Chevron scientists.

Devon's Reserves

The oldest of the rocks formed around the time the dinosaurs disappeared and mammals began to spread across the globe. Up until now, all of the oil and gas produced in the offshore region came from rocks no older than 24 million years, according to the U.S. Interior Department's Minerals Management Service.

Devon's holdings in the region ``could more than double our current reserve base of about two billion equivalent barrels in the coming years,'' Stephen J. Hadden, Devon's senior vice president for exploration and production, said in the statement.

``The results so far are promising and confirm that it should be possible to develop this area commercially,'' Peter Mellbye, Statoil's head of international operations, said in an interview today. ``Drilling in the deep waters is becoming increasingly important in the industry.''

The partners plan to drill another appraisal well at the site in the Walker Ridge Block in 2007. A decision whether to develop Jack may be made in 2007 or 2008, Statoil's Mellbye said.

The exploration that Chevron and its partners are doing ``opens up virgin territory for the industry,'' said Fadel Gheit, an analyst with Oppenheimer & Co. in New York. Devon may be the biggest winner should the fields prove successful because more of its holdings are concentrated there, Gheit said. ``They could end up with major reserves.''

To contact the reporter on this story: Joe Carroll in Chicago at Jcarroll8@bloomberg.net; Dan Lonkevich in New York at dlonkevich@bloomberg.net.

Last Updated: September 5, 2006 16:46 EDT