Deepwater Horizon killed drilling in the Gulf of Mexico… until now.
Since hitting a high of 570 million barrels in 2009, oil production out of the Gulf of Mexico has dropped in each of the last four years to 457 million in 2013. Natural gas volumes have dropped by almost half.
But this is changing. With $103 oil and the BP oil spill falling into the rearview mirror, the prospects of Gulf oil drilling is looking up.
According to our beloved government, Gulf of Mexico oil production is expected to increase by 150,000 barrels per day in 2014 and by an additional 240,000 bpd in 2015.
In harder numbers, the Gulf of Mexico rig fleet is up to 81.6% utilization from 79.1% last month. It’s not much of a change, but at long last, it is moving in the right direction.
Head to the Border
Much of the increase in activity is due to the high price of oil and the reopening of old wells. But there is also renewed interest in deepwater drilling.
Furthermore, a recent agreement with Mexico over drilling for oil on the watery border — called the Transboundary Agreement — means 1.5 million new acres on the U.S. continental shelf can now be developed.
It is estimated that there is 172 Mmboe and 304 bcf of natural gas in this area.
On Tuesday, the first of these formerly disputed drill sites was handed out in the form of three leases to ExxonMobil, who won the bid with a $21,333,850 offer.
Helicopters
Due to the ever-increasing demand for oil, the majority of the growth in oil production over the next two decades will come from offshore deepwater drilling.
One way to play the increase in offshore oil rigs is to buy the companies that get the workers there: helicopter service companies.
Bristow Group (NYSE: BRS) is so bullish about the trend that it announced it will invest one-third of its market cap, or $1 billion, this year to buy 47 new choppers and increase its fleet by 17%.
Barclays, via Reuters, forecasts a 6% rise in global oil and gas exploration and production spending this year. By 2016, it expects about 300 deepwater rigs to be in operation worldwide.
Barclays also believes this growth will lead to the purchase of 300 new helicopters, which will be needed to ferry workers to the rigs over the next five years. Obviously, this new demand will lead to pricing power to those companies that do the ferrying.
The two largest companies in this sector are Bristow Group, which has a P/E of 14.61 and a PEG ratio of 0.93, and CHC Group (NYSE: HELI), which is a smaller chopper company with a market cap of $565 million but no profits, though it is trading 30% below its IPO price. CHC has ordered 33 new helicopters.
If these trends play out and these companies go from losing money to making money in a high-growth environment, their share prices will surge.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
