Editor’s Note: I’ve just finished recording my first Whiteboard Weekly video. It’s all about Peak Oil and the depletion of the world’s largest oil fields. You can view it right here.
Whenever a new discovery like this hits the media, I immediately know what to expect.
Truth be told, I didn’t think the email would take so long this time; maybe I held some glimmer of hope that he was finally seeing the bigger picture…
Sure enough, the subject line was waiting for me the moment I looked at my inbox this morning. The message itself was bare enough, just one headline displayed at the top: North Sea Touts New Giant Discovery.
A few seconds of reading practically told me the entire story, and I wasn’t impressed. Statoil (NYSE: STO) had reported two major finds that are part of a larger giant discovery in the North Sea.
In total, there could be an estimated 1.2 billion barrels of recoverable oil between them.
It couldn’t have come at a better time, that’s for sure. Believe me, dear reader, this kind of good news in the North Sea is like finding a diamond in the rough.
Of course, we’ve all heard that bedtime story before, haven’t we?
Production in the North Sea has been declining since reaching its peak in 1999. At one point, more than six million barrels per day were being produced…
Unfortunately, output is expected to fall to 1.7 million barrels per day by 2012. So we can understand why any positive news is a reason to celebrate.
After all, it was the North Sea’s steep production decline that caused Britain to become a net importer of crude oil.
Diving In Head First
Virginia may be ground zero for developing oil and gas resources in the Atlantic. (And for yesterday’s earthquake!)
Last month, two Senators introduced a piece of legislation that would end the offshore drilling moratorium put in place by Obama.
No, we’re not talking about the Gulf of Mexico… we’ll get to that in a second.
This time around, it’s the waters off Virginia that could open for drilling – about 3 million acres of ocean.
It’s a perfect example of how desperate we’re getting, too.
The Mid and South Atlantic waters hold an estimated 4 billion barrels of crude and 37 trillion cubic feet of natural gas.
Of course, we wouldn’t see a drop of that oil for years… after leasing sales, testing, and drilling is completed.
But then again, we are running out of options, aren’t we?
Prepping Offshore Profits
Although long-term prices are still up in the air, don’t hold your breath waiting for oil to hit $30 per barrel ever again – it took a massive economic downturn on a global scale for prices to hit that level.
How many times have we heard of today’s low oil prices?
Remember, prices are still $20/bbl higher than a year ago. Back then, we were in a doldrum between $60-$80 a barrel.
It’s only a matter of time before we begin referring to triple-digit crude prices as cheap.
Here’s the kicker…
Even if we keep the Atlantic waters free from drilling rigs, developing our offshore resources is guaranteed.
The Interior Department has already set up its first offshore lease sale since the BP (NYSE: BP) disaster. Up on the auction block will be more than 20 million acres, located in the western part of the Gulf of Mexico. It’s been nearly two years since the last sale, which nearly raked in $1 billion.
You probably know my position on the matter. My readers and I have dipped our pens into offshore investment ink for years, and there’s even more excitement this time around.
Not only are offshore drillers beaten down from the year-long moratorium, but watching the market roller-coaster this summer has opened up opportunities that are simply too good to pass up.
These offshore companies are, without question, very strong in the long-run. Three years ago, their rigs commanded daily rates in excess of $600,000.
We could easily see higher rates within the next two years, especially on unexpected oil spikes. Day rates for rigs drilling in the deepwater and ultra-deepwater are already approaching half a million dollars.
Now, I’m not saying to just toss your hard earned money into the wind, hoping it sticks. I would start off with companies with a strong fleet under contract. Does the company have a backlog of work lined up or, even more to the point, is their fleet sitting idle somewhere?
In the past, the one driller always at the top of our list has been Atwood Oceanics (NYSE: ATW). Last week, Atwood announced a new contract for one of their rigs, the Atwood Eagle, which is expected to last until July 2012.
Later this week, I’ll show you one area that’s relatively new to the U.S. energy scene. This new play also happens to hold more than triple the amount of natural gas than can be found off the eastern coast of the United States.
And here’s the best part: tapping this huge resource practically guarantees early investors a rush of profits.
Until next time,
Editor, Energy and Capital